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THE  ECONOMICS  OF 
RETAILING- 


BY 

PAUL  H.  NYSTROM,  Ph.  D. 

Formerly  Assistant  Professor  of  Political  Economy  in  the  University 

of  Wisconsin  and,  later,  Associate  Professor  of  £x;onomics 

in  the  University  of  Minnesota 


NEW  YORK 

THE  RONALD  PRESS  COMPANY 

1915 


Copyright,  1915, 
.    By 
The  Ronald  Press  Company 


TO 

MY  WIFE 

WHOSE  DEVOTION 

AND  HELPFULNESS  HAVE 

MADE  THIS  WORK 

POSSIBLE 


341176 


PREFACE 

This  book  aims  to  present  fact  material  and  to  suggest 
constructive  thought  on  the  subject  of  retail  distribution. 
It  does  not  tell  how  to  get  rich  quick  at  retailing.  It  pre- 
sents but  little  theory  and  advocates  no  particular  or  special 
method  of  doing  the  work  of  the  retail  store.  Its  purpose 
is  to  describe  the  retail  business  as  it  is,  and  to  point  out  the 
broad  lines  along  which  retailing  progress  is  being  made. 

In  this  work  the  attempt  has  been  made  to  reduce  the 
knowledge  about  retailing  to  teachable  form,  and  to  make 
it  usable  alike  to  the  ambitious,  thinking  man  already  in 
business  and  to  the  student  who  desires  to  gain  an  intimate 
insight  into  this  interesting  as  well  as  important  field  of 
human  work. 

Except  in  fragmentary  form,  there  has  been  but  little 
written  upon  which  the  writer  could  build.  The  effort  has 
been  made,  with  what  success  the  reader  must  judge,  to 
bring  together  in  one  volume  a  summary  of  the  best  thought 
so  far  expressed;  but  much  of  the  material  presented  is  the 
result  of  the  writer's  own  observation  and  experience  in  the 
retail  business,  and  of  what  he  has  gathered  in  conference 
with  over  a  thousand  retail  store  managers  and  salespeople 
who  were  students  in  his  classes  in  retail  methods  during 
the  years  1909  to  1915. 

Every  part  of  the  work  has  been  tested  by  presentation 
to  groups  of  people  engaged  in  the  retail  business.  Every 
point  has  been  held  up  to  the  standard  of  practicability. 
It  is  to  be  presumed,  however,  that  it  is  not  free  from  error, 
and  no  one  will  be  more  glad  than  the  writer  to  have  these 

V 


vi  PREFACE 

errors  pointed  out.  A  science  of  retailing  can  become  pos- 
sible only  by  the  freest  and  the  most  critical  interchange  of 
thought. 

This  preface  may  not  be  closed  without  an  expression  of 
the  writer's  personal  indebtedness  for  inspiration  and  sug- 
gestions, to  the  members  of  the  faculty  of  the  Department 
of  Political  Economy,  and  particularly  to  Professor  Wil- 
liam A.  Scott,  Director  of  the  Course  in  Commerce,  in  the 
University  of  Wisconsin. 

Paul  H.  Nystrom. 
New  York  City, 
September,  1915. 


CONTENTS 

PAGE 

Chapter  I.     Distribution 13 

Meaning  of  distribution.  Distribution  versus  production. 
Importance  of  distribution.  Reasons  for  neglect  of  distribu- 
tion. Early  dishonesty  of  distributors.  Contributions  to  the 
study  of  distribution.  Early  literature  of  distribution.  Char- 
acter of  early  American  literature. 

Chapter  II.     The  Distributive  System  ...     .      .     24 

I.  Origin  of  retailing.  Origin  of  the  term  "shop."  Devel- 
opment of  retailing  in  England.  Rise  of  the  "  merchants." 
Early  distributive  organizations.'' ,  Origin  of  wholesaling  insti- 
tutions. The  age  of  many  middlemeiVv -Early  American  dis- 
tributive organization.  Bad  credit^acilities.  Origin  of  mer- 
cantile agencies.  ^iiLagonismJio  mercantile  agencjes.  Origin 
of  traveling  salesmen.  _  Changes  in  buytng  met^o3s*.  Develop- 
ment of  retailing.  Present-day  distribution.  Elimination  of 
middlemen. 

Chapter  III.     The  Consumer       .      .      .      .      .      .      .41 

The  consumer  determines  the  character  of  distribution, 
i  »Who  the  consumers  are.  Influence  of  adults.  Influence  of 
(/  children.  Influence  of  sex.  Habits  of  individuals.  Social 
and  racial  customs.  Geographical  areas  of  consumption.  Con- 
sumers' fancies.  Influence  of  financial  incomes.  Average  ex- 
penditures for  various  lines  of  goods.  Influences  of  dealers 
upon  consumption.  Constant  change  in  consumer  demand. 
Increasing  variation  in  diet.  Package  goods  vs.  bulk  goods. 
Changes  in  demand  for  clothing.  Causes  of  changes  in 
demands. 

Chapter  IV.     Present  Status  of  Retailing   ...     62 

Distribution  overlooked  by  government  census.  Number 
of  distributors  in  various  lines  of  business  according  to  cen- 
sus of  1910.  Massachusetts  trade  census  of  1905.  Massa- 
chusetts study  of  trade  in  Boston,  in  1899,  Dun's  and  Brad- 
street's  lists  of  dealers.  Study  of  retailing  made  by  Amer- 
ican Economic  Association. 

Chapter  V.    The  Expenses  of  Retailing  ....     69 

Reasons  for  the  analysis  of  retailing  expenses.  Harvard 
system  of  accounts  for  shoe  retailers.  Suggestions  made  by 
the  Burroughs  Adding  Machine  Company.  Rules  for  handling 
expense  made  by  National  Association  of  Credit  Men.  The 
Ingersoll  system  for  retail  jewelers.    The  Hart,  Schaffner  & 


viii      .  CONTENTS 

PAGE 

Marx  system  for  retail  clothiers.  The  retailers'  profit.  Classi- 
fication of  retail  store  expenses.  Discussion  of  the  right  way 
to  figure  profits.  Average  expenses  of  retailing  in  this  coun- 
try: Curtis  Publishing  Company  figures,  Harvard  figures  on 
,  shoe  stores,  the  writer's  figures. 

Chapter  VL    Retail  Salespeople  and  Their  Work    82 

The  classes  of  work  in  a  retail  store.  The  amount  of  sales 
work  compared  with  other  store  labor.  Women  in  sales  posi- 
tions. The  salesman's  service  to  the  customer.  The  sales- 
man's service  to  his  employer.  The  factors  that  cause  the  cus- 
tomer to  buy.  The  elements  of  salesmanship.  Social  service 
in  salesmanship.  Honesty  in  salesmanship.  The  salesman's 
personality.  Education  for  salesmanship.  Attention  to  phys- 
ical details. 

Chapter  VII.    The  Wages  of  Salespeople  ....     97 

The  percentage  of  salespeople's  wages  to  total  expense. 
Statistics  of  sales  expense.  Wages  of  salesmen.  Wages  of 
saleswomen.  The  limits  of  sales  wages  set  by  personal  effi- 
ciency. Wage  systems:  time  wage,  commissions,  combina- 
tions of  time  wages  and  commissions,  premiums  and  prizes, 
profit  sharing,  discounts  on  merchandise  purchased  by  sales- 
people. Welfare  work  for  salespeople.  Benefit  associations. 
Fines  systems.  The  minimum  wage  in  retail  stores:  em- 
ployers' minimums,  work  of  salespeople's  unions,  minimum 
wages  fixed  by  legislation. 

Chapter  VIII.  Location  and  Rent  in  the  Retail 
Business  —  The  Principles  of  Rent  Applicable 
TO  Retail  Store  Locations .118 

The  value  of  good  location  in  retailing.  Retail  rents. 
Building  rents  vs.  ground  rents.  Retail  rent  depends  upon 
desirability.  Rents  increase  relatively  faster  than  profits. 
Rents  are  relatively  higher  in  better  locations.  Rents  grow 
relatively  higher  as  location  increases  in  value.  Most  effi- 
cient managers  tend  to  get  best  locations.  Changes  in  retail 
trade  districts.    Checks  to  operation  of  retail  rent  principles. 

Chapter  IX.  Location  and  Rent  in  the  Retail  Busi- 
ness (Continued) — Factors  of  Desirability  in 
Location 138 

Desirability  depends  upon  chance  of  making  profit.  Ac- 
cessibility to  purchasing  public.  Trade  territory  of  neigh- 
borhood stores.  Trade  habits  of  customers.  The  number  of 
passers-by.  Classification  of  passers-by:  workers,  pleasure 
seekers,  shoppers  and  buyers.  ^Natural  retail  store  clusters. 
Beneficial  effects  of  competition.  Spending  habits  of  passers- 
by.  Why  some  streets  are  more  popular  on  one  side  than 
on  the  other.  Value  of  corner  lots.  Influences  hurting  re- 
tail locations. 


CONTENTS  ix 

PAGE 

Chapter  X.     Location  and  Rent  in  the  Retail  Busi- 
ness   (Continued) — Intensive   Use   of   Location  154 

A  good  location  simply  means  a  trade  opportunity.  The 
better  the  location,  the  more  intensive  its  cultivation.  Suit- 
able building.  Proper  use  of  store  space.  Comparative  val- 
ues of  floors  above  or  below  first.  Number  of  floors  that 
may  be  used.  Use  of  balconies.  Factors  in  proper  use  of 
store  space.  Attractiveness  of  store  arrangement.  Location 
of  non-productive  departments.  Location  of  storage  and 
stock  rooms.  Need  for  quick  service  in  handling  crowds. 
Attention  to  store  display.  Economies  in  store  space.  Need 
for  special  efforts  to  attract  trade  in  good  locations.  Value 
of  show  windows.  Value  of  different  parts  of  the  store. 
Use  of  telephone.  Mail  order  department.  Promotion  of 
sales  by  solicitation,  etc.     Importance  of  salesmanship. 

Chapter  XL     How  Retail  Prices  Are  Fixed  .      .      .172 

Retail  prices  based  on  "  what  traffic  will  bear."  Retail  price 
a  resultant  of  many  forces:  costs  of  goods,  costs  of  selling,  ^ 

desirability  of  goods,  competition,  custom  or  habit,  personal 
salesmanship,  ethics.  Relation  of  turnover  to  profit.  Average 
turnovers  in  various  classes  of  trade.  Difficulty  in  using 
average  costs  of  selling  as  a  basis  for  marking  goods.  Price- 
making  in  seasonable  goods.  "  One  price  to  all "  principle. 
Public  should  know  costs  of  selling. 

Chapter  XIL     The  Department  Store 195   N 

Characteristics  and  origin.  Extent  of  department  store 
business.  Department  stores  in  other  countries.  Department 
store  service.  Department  store  advertising.  Department  ^— 
store  buying.  Future  limits  of  department  store  bargain 
sales.  Department  store  organization.  Handling  goods  in  a 
department  store.  Efficiency.  Factors  of  department  store 
success.  Department  stores  compared  with  specialty  stores 
Department  store  sales  expense.  The  need  of  better  trained 
•  sales  people. 


)res.         ^^ 

ined     ^^ 


Chapter  XIIL     Chain-Store  Systems 21 

^  .  .  *.       . 

Characteristics  of  chains.  Classification  of  chains :  retail- 
ors', jobbers',  manufacturers'./  Objects  of  chain-store  or- 
ganization. Consumers'  co-operative  chains.  Comparison  of 
chain  stores  with  individual  stores:  turnovers,  organization, 
selling  methods,  competitive  methods,  costs  of  doing  busi- 
ness. Analysis  of  a  chain-store  system.  Chain-store  account- 
ing. Sales  quotas.  Methods  used  to  increase  sales  effi- 
ciency.   The  future  of  chain  stores. 

Chapter  XIV.    The  Mail  Order  House     ....  235  \ 

Origin  and  development.  Principal  mail  order  concerns. 
Extent  of  mail  order  business.  Reasons  for  success  of  mail 
order  houses:  isolation  in  country  life;  great  circulation  of 
popular  periodicals;   rapid  increase  in  standards  of  living; 


X  CONTENTS 

PAGE 

local  dealers  unable  to  keep  up ;  skilful  advertising.  The  work 
of  the  mail  order  house  advertising.  How  mail  orders  are 
filled.  Delivery  service  in  cities.  Mail  order  credit  busi- 
ness. Mail  order  house  buying.  Mail  order  house  guarantee. 
The  correspondence  department.  Efficiency  devices.  Costs 
of  selling. 

Chapter  XV.     Price-Maintenance 255 

Meaning  of  the  term.  Origin  and  use  of  the  policy. 
Claims  for  and  against.  Arguments  of  business  interests. 
Price-maintenance  vs.  monopoly  price-fixing.  Prices  under 
this  policy  compared  with  other  prices.  Why  pubHc  is  bene- 
fited by  standardized  goods.  Economics  of  price-cutting. 
Competition  of  big  with  little  concerns  in  retailing.     Summary. 

Chapter  XVI.     Buying  at  Inside  Prices   ....  277 

The  inside  price  a  special  problem  in  distribution.  Forms 
of  inside  prices :  special  concessions  to  buyers,  quantity 
prices,  split  salesmens'  commissions,  split  jobbers'  profits, 
free  deals,  abnormal  discounts  for  cash,  forward  dating.  In- 
sidious influences  of  the  inside  price.  Arguments  in  favor  of 
the  quantity  price:  expediency  and  custom;  quantity  price 
earned  by  buyer;  accordance  with  public  policy.  Arguments 
against  the  quantity  price.  Need  for  the  public  to  under- 
stand the  nature  of  inside  prices.  The  inside  price  a  form  of 
discrimination  similar  to  that  found  in  the  transportation  field 
before  the  Interstate  Commerce  Act. 

Chapter  XVII.     The  Failure  Rate  in   the  Retail 
Business 300 

Abnormal  frequency  of  failure.  Dun  and  Bradstreet  im- 
perfect guides.  Estimates  of  failure  rate  among  retailers. 
Failure  rate  among  retailers  in  Wisconsin  towns.  Causes 
of  failures.  Previous  occupations  of  present  retailers. 
Bradstreet's  classification  of  business  failures.  Education  the 
remedy. 

Chapter  XVIII.     Are     There     Too     Many     Retail 
Stores? 317 

Views  held  by  theorists.  Confusion  in  the  question.  Light 
on  the  subject  from  the  census.  Comparison  of  number  of 
retailers  with  population.  Remarkable  development  of  trade 
since  1850.  Comparison  of  number  of  retailers  with  amount 
of  work  done.  Number  of  dealers  now  not  proportionately 
greater  than  in  1850,  Why  more  dealers  are  needed  now : 
large  scale  factory  production ;  wide  variety  of  goods  de- 
manded by  people ;  increased  number  of  city  dwellers.  Costs 
of  distribution  have  probably  increased.  Not  certain  that  re- 
ducing the  number  of  dealers  would  reduce  costs.  Tendency 
of  costs  to  rise  as  standards  of  people  rise.  Opportunities 
for  more  efficient  distribution. 


CONTENTS  xi 

PAGE 

H AFTER   XIX.     Public   Regulation   of   the   Retail 
Business 337 

Present  forms  of  regulation.  Business  taxation  as  a  means 
of  regulation.  The  business  .  tax  in  present  use.  Business 
taxes  in  other  countries.  .  Revenues  from  business  taxes.  In- 
cidence of  the  business  tax.  Beneficial  effects  of  business 
taxes  to  retailers.  Beneficial  effects  to  the  public  Difficulties 
of  applying  the  tax  in  this  country.  Need  of  investigating 
retail  business,  ^  -7^ 

Chapter  XX.     The  Ideal  Retailing  System   .      .      .  357 

The  present  retail  system  a  product  of  evolution.     Changes  '' 

are  made  slowly  but  constantly.  Tendencies  toward  better  <  "* 
service  on  the  one  hand  and  lower  costs  on  the  other.  Fac- 
tors of  ideal  retail  distribution:  expert  sales  service;  elimina- 
tion of  leaks  and  waste;  good  sanitary  arrangements;  abso- 
lute truthfulness  in  advertising  and  selling;  standards  in 
merchandise;  public  regulation  to  secure  the  above.  Elim- 
ination of  price  discriminations.  The  open  door  to  the  con- 
sumer for  all  producers.  Development  of  trade  associations. 
Need  for  the  gathering  of  trade  statistics  by  state  and  nation. 
Possibilities  of  increasing  trade  efficiency.  Need  for  public 
education  in  distribution. 

Appendices 373 

I,  Distribution  of  Family  Expenditures.  II.  Statistics  of 
Trading  Concerns  in  Massachusetts.  III.  General  Statistics 
of  Retail  Trade.  IV.  Dealers  in  the  United  States  in  1913, 
V.  Rules  for  Figuring  Costs  and  Profits.  VI.  Methods  of 
Handling  Cash,  Credits  and  Sold  Goods.  VII.  Judicial  and 
Other  Action  Affecting  Price-Maintenance. 

CHARTS 

The  Channels  of  Distribution  for  Various  Lines  of  Goods     .       •      3^ 
'harts  Showing  Internal  Organization  of  Specialty  and  Depart- 
ment Stores 206 

Comparison  by  Decades  of  the  Number  of  Merchants,  of  Com- 
mercial Travelers,  and  of  Total  Persons  in  Trade  and  Trans- 
portation, with  the  Total  Value  of  Manufactures  and  Imports  ,    3^9 

iagram  Showing  Tendency  of  Costs  of  Production  to  Decrease, 
and  of  Costs  of  Distribution  to  Increase 33^ 


THE  ECONOMICS  OF  RETAILING 

CHAPTER  I 

DISTRIBUTION 

To  move  goods  from  where  they  are,  to  places  where 
they  are  wanted ;  to  effect  exchanges  so  that  those  who  have 
merchandise  to  dispose  of  and  those  who  desire  to  acquire 
merchandise  may  both  be  accommodated;  and  to  get  the 
goods  from  the  producers  and  place  them  in  the  hands  of 
the  consumers  —  this  is  the  problem  of  the  distribution  of 
goods. 

The  term  "  distribution  "  is  used  in  another  sense  in  the 
standard  books  on  political  economy.  There  it  means  the 
shares  of  income  received  by  members  of  society  for  their 
participation  in,  or  contribution  to,  the  economic  system. 
The  term  as  used  here  has  no  reference  to  the  income  of 
any  one.  It  refers  solely  to  the  processes  of  carrying  and 
exchanging  material  goods,  and,  used  in  that  sense,  isjbut 
a  part  or  a  phase  of  what  economic  treatises  call  "  produc- 
tion." Wherever  the  term  distribution  is  used  in  this  work 
it  should  be  remembered  that  it  means  distribution  of  goods, 
and  not  what  technical  treatises  on  economic  theory  call 
distribution  of  wealth. 

Attention  has  centered  for  years  on  methods  of  increasing 
the  production  of  goods,  of  reducing  the  expenses  of  pro- 
duction, and  of  making  the  part  played  by  labor  in  produc* 
tion  relatively  easier.  Veritable  sciences  have  been  devel- 
oped in  engineering,  in  mining,  and  in  agriculture.     In  the 

13 


14 


ECONOMICS  OF  RETAILING 


producing  of  things  in  either  field  or  factory  a  knowledge, 
almost  exact,  is  at  the  disposal  of  the  managers.  As  a  result, 
a  large  part  of  the  uncertainty  formerly  inherent  in  pro- 
duction is  being  eliminated.  But  this  is  not  so  in  the  dis- 
tribution of  goods  to  the  ultimate  consumers.  Here  we 
have  a  number  of  very  important  functions,  such  as  trans- 
portation, insurance,  banking,  storage,  and  all  that  might  be 
comprehended  under  the  term  marketing  —  the  choosing  of 
the  right  methods  of  distribution,  the  assembling,  packing, 
sorting,  handling,  the  buying  and  selling.  These,  save  as 
to  the  first  three,  i.e.,  transportation,  insurance,  and  bank- 
ing, have  received  but  little  scientific  attention  —  only  that, 
in  fact,  which  business  men  give  to  their  practical  affairs. 
Production  has  been  the  object  of  solicitous  scientific  study 
in  laboratory  and  school,  while  distribution,  except  as  to 
the  three  specialized  phases  named  above,  has  been  left 
largely  to  itself. 

It  can  hardly  be  argued  that  this  neglect  of  distribution  is 
due  to  the  small  importance  of  the  subject.     It  has  been  es- 

Itimated  that  the  costs  of  distributing  goods  exceed  the  costs 
of  manufacture.  The  number  of  people  engaged  in  the  dis- 
tributive occupations  equal  nearly  one-sixth  of  the  total 
number  of  gainful  workers.  The  number  of  people  engaged 
in  the  retail  business  alone  exceeds  the  number  of  those  in 
any  line  of  manufacture,  and  is  exceeded  only  by  the  num- 
ber engaged  in  agriculture. 

It  cannot  be  that  the  distribution  of  goods  has  been  so 
well  done  that  no  criticism  could  be  made.  Indeed,  much 
of  the  fault  for  the  increasing  cost  of  living,  whether  rightly 
or  wrongly,  has  been  placed  by  many  people  upon  the  sys- 
tems of  distributing  goods. 

Two  main  reasons  may  be  cited  at  this  point,  to  explain 
why  this  important  field  of  work  has  not  received  the  study 
that  it  should.     First  of  all,  scientific  progress  is  never  made 


DISTRIBUTION  15 

in  all  lines  at  the  same  time.  Advances  are  made  in  one 
thing  at  one  time,  in  another  at  another  time,  etc.  The 
development  of  the  sciences  pertaining  to  agriculture  and 
engineering  have  made  their  greatest  strides  within  the 
memory  of  men  now  living.  These  productive  sciences  are 
still  in  process  of  rapid  growth.  Why  scientific  develop- 
ment should  have  begun  on  these  lines  is  obvious.  Without 
product  there  could  be  no  distribution.  It  is  safe  to  say 
that  the  distributive  system  as  it  existed  before  the  present 
age  of  factory  production  was  both  adequate  and  efficient 
for  its  time.  The  progress  of  production  is  what  has  made 
necessary  the  study  and  improvement  of  distribution. 

The  second  reason  why  thorough-going  studies  have  not 
yet  been  made  in  distribution  is  that  the  distributive  process 
—  the  handling  of  goods  and  the  work  of  middlemen  —  has 
been  considered  by  the  public  as  something  in  the  nature  of 
a  necessary  evil.  Press  and  platform  have  united  in  giv- 
ing the  impression,  indirectly  at  least,  that  distribution  is 
less  important  than,  and  somewhat  beneath,  the  productive 
enterprise.  Economists  have  given  practically  their  entire 
thought  to  analyzing  production  rather  than  distribution. 
Distribution  has  been  taken  for  granted.  To  the  public  the 
mention  of  middlemen  and  their  work  has  usually  suggested 
only  the  thought  of  trickery  or  dishonesty. 

Ever  since  the  beginning  of  trade  there  has  been  a  tend- 
ency to  attribute  mean  qualities  to  the  dealer,  largely  due, 
no  doubt,  to  the  fact  that  his  earnings  could  come  only  by 
adding  a  profit  to  his  purchases  before  selling  them.  Since 
no  change  was  made  in  the  form  of  the  goods,  people  were 
inclined  to  reason  that  additions  to  the  price  were  unjust 
impositions.  It  is  not  urged  that  no  worse  causes  than  this 
have  helped  to  create  the  evil  impression,  but  this  in  itself 
was  sufficient  to  give  impetus  to  the  view,  and  probably  ac- 
counts for  the  larger  part  of  it. 


i6  ECONOMICS  OF  RETAILING 

"  As  a  nail  sticketh  fast  beneath  the  joinings  of  the 
stones,  so  doth  sin  stick  close  between  buying  and  selling."  ^ 
Such  was  the  view  of  the  ancient  Hebrews. 

Ancient  Persians  held  commerce  to  be  a  school  of  lies.^ 
The  old  Greek  word  for  retail  trader  meant  the  same  as 
falsifier.  To  retail  and  to  falsify  were  synonymous.  Aris- 
totle, the  great  Greek  philosopher  said : 

"  Of  the  two  sorts  of  money  making,  one,  as  I  have  just 
said,  is  a  part  of  household  management  (agriculture  arid 
the  hand  trades),  the  other  is  retail  trade;  the  former  nec- 
essary and  honorable,  the  latter  a  kind  of  exchange  which 
is  justly  censured,  for  it  is  unnatural,  and  a  mode  by  which 
men  gain  from  one  another."  He  then  adds,  "  The  most 
hated  sort,  and  with  greatest  reason,  is  usury  (charging  in- 
terest for  the  use  of  money)  which  makes  a  gain  out  of 
money  itself,  and  not  from  the  natural  use  of  it."  ^ 

Cicero  went  so  far  as  to  claim  that  no  one  could  be  pro- 
ficient as  a  merchant  without  lying.  ''Nihil  proHciunt 
mercatores  nisi  mentiantur:  mercatura,  si  tenuis,  sordida 
putanda  est." 

The  Church  of  the  Middle  Ages  likewise  held  strong 
views  against  traders.  St.  Chrysostom  believed  it  scarcely 
possible  that  a  man  could  at  the  same  time  be  a  Christian 
and  a  merchant.  The  canon  law  prohibited  buying  in  order 
to  sell  again  at  a  higher  price.  It  was  considered  a  sin  to 
gain  money  in  trade. 

The  old  Italian  words  ''  barulla/'  ''  treccone/'  and  ''  rir- 
venditore,"  used  to  designate  retailers,  also  signify  covet- 
ousness,  tendency  to  cheat,  and  vileness. 

In  Medieval  England  laws .  were  passed  against  "  en- 
grossers," "  regrators,"  and  "  forestallers."  An  engrosser 
was  one  who  bought  in  order  to  sell  again ;  a  regrator  one 

1  "  Ecclesiasticus,"    XXVII,    2. 

2  Ely,   "  Problems  of  To-day,"   p.   23. 

3  "  Aristotle's  Policies,"  Jowett's  translation,  p.  19. 


DISTRIBUTION  17 

who  bought  in  order  to  sell  in  the  same  market  or  within 
four  miles  thereof;  and  a  forestaller  was  one  who  bought 
goods  before  they  came  to  market,  and  thus  prevented  them 
from  coming  to  market  in  the  hands  of  the  producers. 

Something  of  the  same  view  has  come  down  to  modern 
times.  Even  Adam  Smith,  the  founder  of  scientific  political 
economy,  warned  the  people  against  traders :  "As  during 
their  whole  lives  they  are  engaged  in  plans  and  projects,  they 
have  frequently  more  acuteness  of  understanding  than  the 
greater  part  of  country  gentlemen.  .  .  .  The  interest  of  the 
dealers,  however,  in  any  particular  branch  of  trade  or  manu- 
factures, is  always  in  some  respects  different  from,  and  even 
opposite  to,  that  of  the  public.  .  .  .  The  proposal  of  any 
new  law  or  regulation  of  commerce  which  comes  from  this 
order  ought  always  to  be  listened  to  with  great  precaution, 
and  ought  never  to  be  adopted  till  after  having  been  long 
and  carefully  examined,  not  only  with  the  most  scrupulous, 
but  with  the  most  suspicious  attention.  It  comes  from  an 
order  of  men  whose  interest  is  never  exactly  the  same  with 
that  of  the  public,  who  have  generally  an  interest  to  deceive 
and  even  to  oppress  the  public,  and  who  accordingly  have, 
upon  many  occasions,  both  deceived  and  oppressed  it."  * 

Herbert  Spencer  wrote  an  essay  entitled  ''  The  Morals 
of  Trade,"  in  which  he  enumerated  a  long  list  of  short- 
comings of  the  trading  classes,  but  placed  a  large  part  of 
the  blame  for  these  on  the  customers  and  people  at  large. ^ 

These  two  causes  —  on  the  one  hand,  the  necessary 
primacy  of  production  and  its  obvious  relations  to  social 
welfare,  and,  on  the  other,  the  contempt  fdr  the  occupations 
of  distribution  —  very  largely  account  for  the  slowness  with 
which  people  have  come  to  see  any  need  for  the  study  of 
the  distributive  processes. 

4  '•  Wealth  of  Nations,"  Book  I,  Ch,  XI. 

5  "  Spencer's  Essays,"  p.   107  ff. 


1 8  ECONOMICS  OF  RETAILING 

There  are  many  indications  of  a  coming  change  in  this 
attitude,  however.  For  example,  writers  no  longer  say  so 
much  about  the  dishonesty  of  dealers,  though  the  jokesmiths 
and  cartoonists  still  intersperse  this  idea  with  the  mother- 
in-law,  slow  train,  precocious  child,  accident  to  an  Irishman, 
and  other  stock  mirth  provokers.  Criticism  is  now  gen- 
erally leveled  at  the  inefficiencies  of  the  distributive  sys- 
tem rather  than  at  its  crookedness. 

This  is  a  favorable  sign,  and  one  can  well  afford  to  par- 
don or  neglect  the  crudeness  of  some  of  the  suggestions 
that  are  offered  as  panaceas,  since  these  suggestions  indicate 
the  working  of  a  leaven  that  will  sooner  or  later  develop 
into  solid  research. 

It  must  not  be  supposed  from  the  foregoing  that  nothing 
has  been  contributed  towards  a  practical  theory  of  distribu- 
tion, nor  that  the  subject  has  received  no  serious  thought 
at  all.     Three  hundred  years  ago.  Sir  Francis  Bacon,  wrote : 

"  The  wisdom  touching  negotiation,  or  business,  hath 
not  been  hitherto  collected  in  writing,  to  the  great  derogation 
of  learning  and  the  professors  of  learning.  .  .  .  For  if 
books  were  written  of  this,  as  the  other,  I  doubt  not  but 
learned  men,  with  mean  experience,  would  far  excel  men  of 
long  experience  without  learning,  and  outshoot  them  with 
their  own  bow." 

In  1726  the  first,  and  in  1727  the  second,  volume  of  a 
remarkable  work  appeared,  entitled  "  The  Complete  English 
Tradesman."  So  far  as  is  known,  this  was  the  first  attempt 
to  gather  together  in  book  form  in  the  English  language  the 
maxims  and  principles  of  the  best  practice  in  trading  and 
retailing  as  carried  on  at  that  time.  The  first  volume  was 
written  to  serve  as  a  text-book  for  apprentices  and  begin- 
ners in  merchandising.  The  second  considers  the  problems 
that  experienced  tradesmen  were  likely  to  be  interested  in. 
Although  now  out  of  date,  and  in  many  places  based  on 


DISTRIBUTION 


19 


defective  economic  theory  (Mercantilism),  there  are  within 
these  two  volumes  many  lessons  of  value  even  for  dealers 
of  the  present  time.  The  material  was  presented  in  a 
clear  and  most  interesting  manner.  The  author  of  this 
brilliant  first  effort  in  literature  on  trading  is  Daniel  Defoe, 
well  known  to  the  world  as  the  author  of  "  Robinson  Cru- 
soe." 

No  attempt  will  be  made  to  trace  the  literary  develop- 
ment of  this  subject.  That  would  require  more  time  and 
space  than  can  be  given  here.  A  few  statements  will  suffice. 
The  next  notable  contributions  following  Defoe's  book 
seem  to  have  been  the  work  of  economists,  Adam  Smith, 
Ganilh,  J.  B.  Say,  McCulloch,  and  others  in  Europe,  while 
Benjamin  Franklin  in  America  did  a  great  deal  to  popular- 
ize among  merchants,  clerks,  and  business  men  in  general, 
much  homely  common  sense  and  wisdom  of  value  in  the 
conduct  of  business.  As  has  been  said,  the  economists  gen- 
erally concerned  themselves  little  with  the  processes  of  dis- 
tributing goods,  but,  in  developing  their  theories,  they  in- 
dicated the  lines  along  which  progressive  thinking  might 
begin.  Besides  their  general  theoretical  studies,  such  sub- 
jects as  banking,  money,  and  credit,  and,  in  the  last  half 
of  the  nineteenth  century,  insurance  and  transportation, 
came  to  be  considered  in  detail.  Foreign  trade  has  been 
a  subject  given  much  consideration.  Politicians  have  based 
many  of  their  doctrines  on  economic  grounds,  thus  bring- 
ing up  much  controversy  over  such  questions  as  the  tariff 
and  taxes. 

The  turmoil  of  national  and  political  life  during  the 
nineteenth  century  turned  the  currents  of  economic  thinking 
largely  into  political  lines.  **  The  Wealth  of  Nations," 
"  Political  Economy,"  *'  National  Economy,"  "  Inquiry  into 
the  Nature  and  Origin  of  Public  Wealth,"  ''  Political  Econ- 
omy and  the  Philosophy  of  Government,"  and  "  National 


20  ECONOMICS  OF  RETAILING 

System  of  Political  Economy,"  are  titles  of  early  works 
which  show  clearly  enough  the  bent  of  their  authors'  minds. 
The  production  and  distribution  of  wealth  (distribution  in 
the  sense  of  the  economists)  was  to  them  a  matter  to  be 
studied  in  the  light  of  its  relation  to  government.  Individ- 
ual economics  was  left  to  care  for  itself.  This  tendency  of 
political  economy  to  emphasize  the  political  side  has  con- 
tinued down  to  the  present.  But,  recently,  several  works 
have  appeared  that  give  considerably  less  space  to  the  po- 
litical phases  and  more  to  an  explanation  of  the  causes  and 
influences  operating  on  values,  the  processes  of  production, 
and  of  the  market.  These  treatises  are  more  generally 
denominated  "  Economics,"  "  Outlines  of  Economic  The- 
ory," "  Dynamic  Economics,"  "  Principles  of  Economics," 
and  "  Introduction  to  Economics."  The  change  in  empha- 
sis from  political  to  individual  and  private  is  to  be  noted 
in  the  tendency  to  use  the  word  "  economics  "  rather  than 
"  political  economy." 

One  of  the  first  books  written  in  this  country  solely  for 
merchants  was  B.  F.  Foster's  "  The  Merchant's  Manual,"' 
in  1838.  Two  magazines  that  gave  considerable  help  to 
trading  classes  during  the  middle  of  the  nineteenth  century 
were  Hunt's  Merchants'  Magazine  of  New  York,  first 
issued  in  1839,  and  DeBow's  Reviezv,  of  New  Orleans, 
begun  in  1846.  Hunt  was  a  prolific  writer  on  business 
topics,  most  of  his  material  appearing  in  his  magazine. 
J.  D.  B.  DeBow,  editor  of  DeBow's  Review,  was  a  pro- 
fessor of  political  economy  in  the  University  of  Louisiana. 
His  writings  and  editorial  work  were  of  a  substantial  sort, 
especially  in  outlining  trade  conditions  in  the  South  and 
West. 

A  number  of  books  on  business  subjects  appeared  be- 
tween 1850  and  1880.  Some  of  the  best  known  are  men- 
tioned in  the  following  paragraphs. 


DISTRIBUTION  21 

Edwin  T.  Freedley's  "  A  Practical  Treatise  in  Business  " 
passed  through  several  editions.  More  than  20,000  copies 
had  been  printed  by  1853. 

Freeman  H.  Hunt's  "  Lives  of  American  Merchants  " 
appeared  in  1858,  and  another  work  known  as  "  Worth  and 
Wealth,  a  Collection  of  Maxims,  Morals,  and  Miscellanies 
for  Merchants  and  Men  of  Business  "  had  appeared  in  1857. 
The  material  in  both  of  these  books  first  appeared  in  the  form 
of  magazine  articles  in  Hunt's  Merchants'  Magazine. 

Davies'  "  How  to  Make  Money "  was  issued  in  1867 
followed  by  S.  H.  Terry's  "The  Retailer's  Manual,"  in 
1869.  This  latter  work  has  run  through  16  editions,  and 
still  has  some  sale  under  the  title  "  How  to  Keep  a  Store." 

J.  A.  Scoville's  "  Old  Merchants  of  New  York  "  ap- 
peared in  1876. 

A-iiQticeable^haracteristic  of  most  of  this  early  Ameri- 
can literature  on  business  is  its  grandiloquent  and  fulsome 
eulogy  of  individual  business  men  whose  records  have  since 
shown  them  to  merit  but  a  small  part  of  the  praise  showered 
upon  them.  Another  characteristic  was  its  verboseness  and 
flourish  in  announcing  very  simple  and  plain  business  meth- 
ods and  practices  as  if  they  were  great  discoveries.  Still 
another  was  a  general  tendency  to  moralize  at  every  pos- 
sible opportunity.  To  exaggerate  somewhat,  the  line  of 
moral  logic  seemed  to  be  something  like  this:  Do  these 
things  and  be  good,  and  you  will  be  rich;  be  rich  and  you 
will  be  happy.  A  large  amount  of  this  literature  was  dis- 
tinctly intended  for  moral  instruction.  Much  of  it  was 
written  by  ministers  and  temperance  workers.  Some  of  the 
following  titles  may  suggest  the  character  of  the  reading : 

"  The  Merchants'  Clerk  Cheered  and  Counselled," 
"  Mercantile  Morals,  or  Thoughts  for  Young  Men  Entering 
Mercantile  Life  "  (1852),  "  The  Merchant's  Clerk  "  (1852), 
"On  the  Road  to  Riches"   (1876),  "Sins  of  Trade  and 


22  ECONOMICS  OF  RETAILING 

Business  "  (1874),  "  The  Bible  in  the  Counting  House,  Lec- 
tures to  Merchants"  (1878). 

Fashion  affects  the  Hterature  of  business  as  it  does  the 
popular  novels  of  the  day.  Moral  teaching  —  much  of  it, 
unfortunately,  mere  cant  — was  the  fashion  in  light  busi- 
ness literature  of  the  middle  of  the  nineteenth  century, 
much  as  the  literature  of  "  scientific  management  "  rules 
the  mode  today.  Not  that  no  good  came  out  of  the 
former,  nor  that  good  is  missing  in  the  present  fashion  — 
for  the  former  produced  some  lasting  results,  as  will  the 
latter;  but  these  waves  of  thinking  characterize  our  general 
mental  progress.  Each  receding  wave  leaves  behind  some 
substantial  products  of  lasting  value  which  may  be  made 
of  service  if  condensed,  preserved,  and  crystallized  in 
proper  form. 

The  past  ten  years  has  seen  such  a  flood  of  business 
literature  as  has  never  appeared  before.  It  is  out  of  all  these 
efforts  that  an  organized,  systematic  treatment  of  the  sub- 
ject is  becoming  possible.  With  the  adoption  of  educa- 
tional courses  in  schools  and  colleges  dealing  with  distribu- 
tion, the  establishment  of  experimental  distributive  stations, 
the  investigation  of  specific  problems  by  careful  unbiased 
methods,  the  accumulation  of  business  facts  by  means  of 
censuses  conducted  by  the  government,  all  of  which  have 
been  proposed,  and  some  of  which  are  already  under  way, 
the  hope  of  a  science  of  distribution  of  goods  stands  a  chance 
of  realization  in  the  near  future. 

In  conclusion,  the  distribution  of  goods  constitutes  a 
problem  whose  importance  has  only  recently  come  to  be  felt. 
In  view  of  the  advanced  development  of  other  industrial 
lines,  it  may  not  be  too  much  to  say  that  it  is  the  biggest 
economic  problem  confronting  the  people  of  this  country  at 
the  present  time.  It  presents  itself  to  the  public  in  three 
different  ways:     First,  it  is  desirable  that__those  who  are 


DISTRIBUTION  23 

to  enter  this  field  of  work  should  be  properly  trained  for/ 
performing  their  services.     Second,  careful  studies  need  to\ 
be  made  to  determine  the  most  economical  routes  through  I  (/M^ 
which  the  goods  may  be  transferred  from  the  producers  to  ) 
the  consumers.     Third,   in  the  interests  of  ultimate  good  / 
to  the  consumers,   fair  practices  in  trading  must  be  pro-  1 
moted,  and  efficiency  encouraged. 

In  the  following  pages,  one  link  of  the  distributing  sys- 
tem —  retailing  —  will  be  examined  and  described  in  the 
light  of  these  three  viewpoints. 


CHAPTER  II 

THE  DISTRIBUTIVE  SYSTEM 

The  retail  store  or  shop  in  some  form  or  other  exists  in 
every  civiHzed  land.  Wherever  buying  and  selling  com- 
modities is  carried  on  continuously,  there  spring  up  the 
necessary  buildings  and  equipments  that  we  visualize  when- 
ever we  think  of  retailing.  The  form  and  development  of 
the  business  carried  on  in  retail  stores  have  changed  re- 
markably since  the  beginnings  of  such  trade.  A  study  of 
this  development  would  be  not  only  interesting  but  fruitful 
in  understanding  the  present  retailing  institutions.  Such  a 
study  must  in  the  present  case  be  omitted  except  for  a  few 
general  statements. 

In  England  the  retail  store  is  known  as  a  "  shop/'  and 
this  term  indicates  its  origin.  A  thousand  years  ago  there 
vy-ere  no  retail  stores  in  England  such  as  there  are  today. 
Every  home  «vas  practically  self-sufficing,  especially  as  to 
material  needs.  The  food,  the  clothing,  and  the  rude  im- 
plements used  were  all  made  or  prepared  in  the  homes.  The 
room  or  the  outlying  building  in  which  things  were  made, 
was  called  the  shop.  As  time  went  on,  it  was  found 
more  profitable  for  some  members  of  a  community  or  vil- 
lage to  give  their  attention  to  one  thing  only,  as  for  example, 
the  spinning  of  yarns,  the  weaving  of  cloth,  the  making  of 
shoes,  the  production  of  hats,  and  the  shaping  of  iron  and 
copper  into  tools  or  utensils.  The  surplus  products  pre- 
pared by  these  early  specialists  were  traded  for  the  products 
of  others;  thus  each  got  for  consumption  a  share  of  the 

24 


r 


THE  DISTRIBUTIVE  SYSTEM 


25 


products  of  all  in  return  for  production  of  some  one  thing 
for  all.  There  were  at  this  stage  no  middlemen.  Each 
man  with  a  product  to  dispose  of  hunted  up  a  man  who  had 
a  product  to  sell,  or  waited  for  someone  to  come  to  his  shop 
who  wanted  to  make  a  trade.  The  weaver  who  wanted  meat 
took  his  cloth  to  the  home  of  the  cattle  raiser,  and  the  shoe- 
maker who  wanted  clothes  for  himself  and  family  traded 
his  shoes  to  the  weaver  and  tailor  in  return  for  their  handi- 
work. In  this  earliest  type  of  exchange,  thejionsumen-and 
_prodj4c^_caine  together  in  ^very-transaction.  The  ordinary 
place  where  the  transactions  were  made  was  either  the  village 
market  —  usually  some  central,  open  space  to  which  all  who 
wanted  to  get  or  to  dispose  of  goods  came  regularly  on 
certain  days  — ^  br  the  homes  or  shops  of  the  people.  To  go 
about  from  one  workshop  to  another  in  search  of  an  article 
wanted  was  to  **  go  a-shopping." 

Later,  some  producers,  who  may  have  been  too  busy  to 
go  out  to  hunt  Customers  or  who  did  not  have  any  liking 
or  ability  for  tbe  marketing  phase  of  their  work,  begaa 
to_tum  their  products  over  to  other  producers  to  market 
for  them.  These  goods  were  usually  stored  in  the  shops  of 
the  latter  to  await  the  calls  of  customers,  and  it  was  only  a 
matter  of  development  over  a  few  years  when  a  number  of 
these  found  that  selling  the  goods  intrusted  to  them  took 
up  so  much  o^  their  time  and  proved  so  profitable  that  they 
gave  up  making  goods  on  their  own  account  and  spent  all 
of  their  time  in  marketing  goods  other  people  had  made. 
Thus  their  shops,  which  had  formerly  been  workshops,  now 
became  sales  and  store  rooms,  but  the  name  clung  to  the 
establishments. 

There  developed  out  of  the  conditions  of  the  handicraft 
stage  a  great  number  of  one  line  or  specialty  shops  generally 
located  in  the  building  that  also  served  as  the  home  of  the 
family,  as  for  example,  in  the  cellar,  or  ground  floor;  and 


26  ECONOMICS  OF  RETAILING 

consequently,  to  this  day  it  is  the  custom  in  England  and 
other  European  countries  —  much  more  generally  than  is 
the  case  in  this  country  —  for  merchants  to  live  in  upper 
floors  over  their  stores.  Each  kind  of  goods  tended  to  be 
handled  by  a  separate  dealer;  so  there  were  found  linen 
drapers,  wool  drapers,  silk  drapers,  leather  dressers,  saddle 
makers,  shoemakers,  iron  mongers,  brass  mongers,  copper 
goods  dealers,  grocers,  fruiterers,  pepperers,  fishmongers, 
and  so  on. 

The  importation  of  goods  from  other  lands,  such  as 
silks,  spices,  fruits,  and  jewelry,  contributed  additional 
classes  of  shops.  As  trade  in  a  shop  expanded,  and  as  the 
owner  became  more  wealthy,  it  was  customary  for  him  to 
employ  his  surplus  capital  and  energy  in  some  sort  of  mer- 
chandising venture.  In  seventeenth  century  England,  the 
following  procedure  was  general :  The  merchant  would 
buy  up  a  cargo  of  English-made  goods,  send  them  abroad, 
trade  them  for  other  goods,  and  return  with  these  to  Eng- 
land where  they  could  usually  be  sold  at  a  good  profit. 
However,  there  were  great  dangers  in  those  days  of  a  ship's 
never  coming  back.  While  the  profits  were  good,  the  risks 
were  great.  To  reduce  the  risk  of  the  individual  merchant, 
organizations  known  as  merchants'  stock  companies  were 
formed  to  finance  a  number  of  ships.  Ih  this  way  it  be- 
came possible  for  a  merchant  to  have  his  wealth  invested  in 
several  ships,  instead  of  all  of  it,  or  a  large  part  of  it,  in  a 
single  vessel.  If  a  ship  were  lost,  its  owner,  if  an  individual, 
would  be  ruined,  but  if  it  was  but  one  of  a  fleet  owned  by 
a  company,  the  loss  on  no  ^particular  member  was  very  im- 
portant. These  early  companies  were  known  as  the  mer- 
chant adventurers'  companies.  For  two  hundred  years  or 
more,  these  were  among  the  most  remarkable  business  or- 
ganizations that  existed.  They  were  the  forerunners  of 
the  modem  corporation,  of  modern  insurance  and  risk-taking 


THE  DISTRIBUTIVE  SYSTEM 


27 


concerns,  and  of  modern  wholesale  houses.  With  the 
growth  of  these  companies  began  to  arise  a  distinction  in 
the  use  of  the  word  "  merchant."  Only  those  who  engaged 
in  foreign  trade  on  a  large  scale  were  so  called,  while  in- 
land dealers  were  simply  called  tradesmen  and  shopkeepers. 
This  limited  use  of  the  word  merchant  prevails  to  the  present 
day  in  England  to  a  considerable  extent. 

The  period  of  the  merchant  adventurers'  companies 
marked  the  beginning  of  England's  supremacy  as  a  trading 
nation,  and  her  success  in  this  line  gained  for  her,  not 
inappropriately,  the  title,  "  a  nation  of  shopkeepers."  ^ 

The  collection  and  exportation  of  the  products  of  Eng- 
land, and  the  distribution  of  imported  goods  over  the  island, 
called  for  extensive  merchandising  organization.  The  large 
warehouses  established  in  the  seaport  towns  were  the  proto- 
types and  forerunners  of  the  modern  wholesale  house.  All 
inland  transportation,  other  than  by  boat  on  the  rivers,  was 
by  wagon  and  horseback.  In  the  early  part  of  the  eighteenth 
century  several  of  the  great  foreign-trade  merchants  not 
only  had  large  sales  warehouses  in  the  seaboard  cities,  but 
also  great  trains  of  wagons  and  pack  animals  which  were 
used  in  gathering  up  the  grain,  wool,  woolen  cloth,  and 
other  textile  fabrics  that  England  produced  and  for  which 
she  was  famed  the  world  over,  and  in  delivering  silks,  spices, 
wines,  metal  goods,  and  novelties  that  had  been  imported 
from  abroad  and  which  were  sold  to  the  little  shops  found  in 
every  village.  The  great  merchant  trading  concerns  not 
only  gathered  up  the  products  offered  for  sale  in  every  lit- 
tle hamlet  of  England  and  transported  them  to  the  seacoast, 
but  also  stored,  shipped,  sold,  and  bought  both  in  foreign 
and  domestic  markets,  and  assumed  all  risks  connected  there- 
with.    Furthermore,  they  sold  from  their  warehouses  to 

1  A  term  credited  to  Napoleon  Bonaparte,  spoken  of  the  English  in  derision; 
also  used  by  Adam  Smith,  "Wealth  of  Nations,"  Book  IV,  Ch.  VII,  pt.  3; 
and  by  Dean  Tucker  in  a  tract  published  in  1766. 


28  ECONOMICS  OF  RETAILING 

tradesmen  who  came  to  them,  and  also  in  wholesale  lots  to 
all  comers  at  the  great  fairs  that  were  then  held  periodically 
at  various  places  in  England  and  to  which  gathered  traders, 
producers,  and  consumers.  These  great  merchants  also 
granted  credit  to  the  shopkeepers,  and  advanced  funds  to 
the  producers,  often  long  before  the  delivery  of  the  products. 
Their  systems  provided  for  performing  most  of  the  work 
now  carried  on  under  the  names  of  importing  and  exporting, 
wholesaling,  transporting  both  by  land  and  water,  insurance, 
banking,  and  storage,  as  well  as  finding  buyers  and  sellers 
for  the  goods  in  which  they  dealt.^ 

When  the  industrial  revolution  began  in  the  latter  part 
of  the  eighteenth  century  and  factory  production  commenced 
to  take  the  place  of  the  old  shop  handicraft  methods,  the 
channels  of  distribution  for  factories  through  wholesalers 
and  retailers  were  already  fairly  well  developed.  All  that 
was  needed  was  an  extension  of  these  channels  to  provide 
for  the  greater  volume  of  goods  made  available  for  markets 
by  the  machine  processes. 

Wholesaling_proper,  apart  from  the  importing  and  ex- 
portmg  business,  cameJryii-existeftGe  with  fa€t^3iy^Hd4arge 
scale  production.  It  was  absolutely  impossible  after  the 
introduction  of  modern  machinery,  for  the  producer  himself 
to  go  out  to  find  markets  for  his  goods.  Either  he  must  em- 
ploy a  selling  organization  of  his  own,  or  sell  his  product 
to  middlemen.  Both  methods  were  followed  early  in  the 
development  of  the  factory  system.  It  was  said  to  have 
been  a  common  sight  on  England's  roads  to  see  a  train  of 
pack  animals  or  of  big  heavy  wagons  loaded  with  cotton  and 
woolen  cloths  setting  out  to  find  shopkeepers  who  would 
buy  their  season's  stocks  therefrom.  As  the  managers  of 
these  trains  sold  the  finished  goods,  they  also  bought  raw 

2  Defoe  in  "The  Complete  English  Tradesman"  (1726),  pp.  388-407,  de- 
scribes very  clearly  and  fully  the  systems  of  distribution  existing  in  England 
at  that  time. 


THE  DISTRIBUTIVE  SYSTEM  29 

wool  in  every  place  where  it  could  be  had  and  accumulated 
a  load  for  the  return  to  the  factory.  Later  it  was  found 
more  profitable  to  send  out  men  on  horseback  or  in  carriages 
with  samples  to  show  to  shopkeepers  and  to  take  orders  to 
be  delivered  from  the  wagons  to  follow.  Thus  originated 
the  custom  of  sending  out  traveling  salesmen  or  commercial 
travelers  in  England.  Large  numbers  of  "  bagmen "  or 
"  chapmen,"  as  they  were  called,  were  traveling  England  by 
the  opening  of  the  nineteenth  century. 

In  finding  markets  wholesalers  followed  practices  identi- 
cal with  those  of  the  big  producers.  Specializing  on  mar- 
keting, building  up  an  established  trade,  granting  credit  to 
retailers,  and  making  advances  to  needy  manufacturers, 
these  wholesalers  gradually  became  more  successful  in  mar- 
keting than  the  manufacturers  who  did  their  own  dis- 
tributing. By  the  end  of  the  eighteenth  century,  nearly  all 
of  the  textiles  sold  in  England  were  distributed  through 
wholesalers,  while  those  going  abroad  were  handled  by  the 
exporting  firms.  The  importing  and  exporting  business  had 
grown  to  large  proportions  and  had  also  become  specialized ; 
the  inland  trade  formerly  carried  on  by  the  early  merchant 
traders,  whose  work  we  have  described,  had  gradually  been 
taken  over  by  the  wholesalers. 

The  channels  of  trade  developed  rapidly  but  not  at  all 
systematically.  Many  wasteful  methods  were  involved. 
During  the  eighteenth  century,  it  was  not  uncommon  for 
goods,  such  as  woolen  cloth,  to  go  through  as  many  as  ten 
hands  in  passing  from  the  producer  to  the  consumer.  Fac- 
tors, brokers,  carriers,  great  wholesalers,  small  wholesalers, 
merchants,  and  retailers  multiplied;  and  strange  as  it  may 
seem  to  people  of  today,  this  was  held  to  be  a  good  thing 
for  England.  In  the  early  part  of  the  century,  Defoe  ex- 
pressed the  current  view  as  follows : 

''  The  greater  the  number  of  hands  through  which  goods 


30  ECONOMICS  OF  RETAILING 

pass,  the  greater  public  advantage  it  is  to  the  country  it  is 
carried  on  or  managed  in;  and,  therefore,  it  is  not  always 
the  true  interest  of  a  manufacturer  in  this  or  that  particular 
place,  to  shorten  or  lessen  the  needful  expense  of  trade, 
though  it  should  render  the  goods  something  the  cheaper  at 
market."  ^ 

The  American  colonies  copied  English  methods  quite 
closely.  The  importer  was  the  real  ''  merchant "  and  he 
served  as  the  wholesaler  as  well,  until  American  manufac- 
tures began  to  be  established  on  a  large  scale,  which  was  not 
until  after  the  War  of  1812-1814.  Up  to  the  time  of  the 
Civil  War,  practically  all  wholesalers  were  importers  also. 

The  organized  system  of  distribution  as  it  existed  up  to 
1860  included  importers,  who  supplied  foreign-made  goods; 
brokers,  who  marketed  the  products  of  the  New  England 
textile  mills;  wholesalers,  who  were  sometimes  importers 
as  we  have  seen,  and  who  otherwise  purchased  from  im- 
porters, brokers,  commission  men,  and  from  producers  di- 
rect; and  retailers. 
^^  There  were  few  commercial  travelers  before  the  Civil 
War.  Retailers  "went  to  market"  to  buy;  that  is,  they 
visited  the  wholesaling  centers  —  Boston,  New  York,  Phila- 
delphia, Baltimore,  Chicago,  Cincinnati,  St.  Louis,  or  New 
Orleans  —  twice  a  year.  It  was  the  custom  to  order  at  one 
time  enough  stock  to  last  for  six  months,  generally  on  from 
six  to  eight  months'  time.  Losses  due  to  bad  debts  were 
frequent,  but  the  margins  of  profit  were  usually  ample  to 
cover  such  shortages.  The  panic  of  1837,  however,  caused 
several  wholesale  and  importing  concerns,  as  well  as  other 
business  concerns,  to  go  into  bankruptcy  because  of  inability 
to  collect  their  accounts.  This  experience  resulted  in  their 
taking  more  care  in  the  granting  of  credit  than  had  pre- 
viously been  customary.     Systematic  efforts   were  there- 

3  Defoe,  "  The  Complete  English  Tradesman,"  pp.  109,  110, 


THE  DISTRIBUTIVE  SYSTEM 


31 


after  made  by  some  of  the  larger  concerns  to  learn  about 
the  financial  standings  of  their  customers.  Men  were  sent 
out  on  the  road  —  the  first  commercial  travelers  in  this 
country  —  to  visit  the  retailers  periodically,  learn  how  they 
were  getting  along,  collect  moneys  due,  extract  settlements 
from  delinquents,  and  to  make  friends  for  the  wholesale 
house  among  those  not  already  customers.  These  men  sold 
little  or  no  goods  as  a  rule  and  the  system  proved  to  be  most 
expensive  and  one  that  only  the  largest  concerns  could  af- 
ford. The  opportunity  for  a  new  kind  of  business  enter- 
prise had  arisen,  namely,  the  mercantile  agency. 

Shortly  after  the  panic  of  1837,  a  Mr.  Church  estab- 
lished in  New  York  a  bureau  of  credit  information  whose 
purpose  it  was  to  serve  wholesalers  who  desired  information 
concerning  out-of-town  merchants  buying  from  them. 
About  1840  the  first  mercantile  reference  book  was  issued. 
The  first  mercantile  agency  was  established  in  1841  by 
Lewis  Tappan  in  New  York.  A  second  was  established  in 
1842  under  the  name  Woodward  and  Dusenbury.  The 
Bradstreet  Company  was  founded  in  1849  by  J.  M.  Brad- 
street,  who,  as  a  salesman  previous  to  1849,  had  collected 
a  great  deal  of  information  about  his  own  customers. 
Later  the  firm  of  R.  G.  Dun  &  Company  came  into  exist- 
ence, taking  over  the  business  built  up  by  Lewis  Tappan. 
Other  concerns  entered  the  field  and  for  years  the  competi- 
tion was  keen,  but  the  two  last  named  are  now  practically 
alone  in  the  field  of  general  mercantile  agencies.  To  a  cer- 
tain extent  special  industries  are  represented  by  special 
credit-reporting  agencies. 

The  mercantile  agency  is  a  purely  American  institution. 
No  country  in  Europe  has  anything  llike  it.  In  England, 
banks  furnish  their  customers  with  information  concerning 
the  standing  of  parties  in  trade,  but  in  this  country  the 
development  of  this  function  among  banks  was  next  to  im- 


32  ECONOMICS  OF  RETAILING 

possible.  In  the  first  place,  banks  were  failing,  suspending 
specie  payments,  and  were  subject  to  great  suspicion  at  the 
times  when  the  desire  for  mercantile  credit  information  was 
strongest,  namely,  during  and  after  the  panics  of  1837,  1843, 
and  1857.  The  country  had  grown  so  rapidly  in  trade, 
and  particularly  in  the  extent  of  territory  over  which  this 
trade  was  transacted,  that  the  small  banks  of  the  whole- 
sale centers  of  the  time  had  neither  the  incentive  nor  the 
ability  to  keep  track  of  commercial  conditions  in  such  a  way 
as  to  be  of  real  service  to  the  commercial  interests  of  the 
country. 

Another  reason  why  the  banks  of  this  country  did  not 
develop  the  credit  information  function  for  their  wholesalers, 
was  that  there  was  no  central  bank  through  which  such  in- 
formation could  be  collected  for  the  whole  country  and 
transmitted  to  the  places  where  it  was  needed.  Thus  the 
mercantile  agencies  came  into  successful  existence. 

Naturally  there  was  considerable  opposition  to  the  meth- 
ods of  the  mercantile  agencies.  It  was  considered  as  an 
imposition  by  many  retailers  to  have  a  third  and  outside 
party  prying  into  their  business  affairs.  Every  attempt  to 
get  information  directly  by  these  concerns  was  opposed  by 
large  numbers  of  business  men.  Magazine  and  newspaper 
articles  were  written  against  the  system.  Even  as  late  as 
1896  a  book  entitled  "  The  Mercantile  Agencies  Against 
Commerce :  Are  We  a  Nation  of  Swindlers  and  Liars  ?  " 
appeared,  written  by  W.  Y.  Chinn,  violently  opposing  the 
agencies.  This  spirit  has  now  largely  passed  away.  An- 
tagonism towards  the  agencies  has  been  largely  replaced  by 
confidence.  A  great  number  of  merchants  today  furnish 
the  mercantile  agencies  with  signed  statements  showing  the 
exact  condition  of  their  respective  businesses.* 

4Earling,  P.  R.,  "Whom  to  Trust,"  pp.  295-304;  Boulter,  J.,  Mercantile 
Agencies  and  Their  Work,  in  "Trade  and  Commerce,"  pp.  372-394;  Masterson, 
E.    D.,   The   Mercantile  Agency,   in   "  Modern   Merchandising,"    Vol.   VI,   pp.   87- 


THE  DISTRIBUTIVE  SYSTEM 


33 


The  present-day  practice  of  sending  out  traveling  sales- 
men to  solicit  trade  from  retailers  seems  to  have  originated 
in  two  ways.  As  has  already  been  indicated,  the  '*  commer- 
cial travelers  "  who  were  sent  out  by  wholesale  houses  to 
ascertain  the  financial  conditions  of  customers  and  to  make 
collections,  began  to  take  orders  for  goods  as  part  of  their 
regular  duties.  There  was  another  type  of  employee  in  the 
early  wholesale  houses  whose  work  finally  grew  into  travel- 
ing salesmanship  —  the  "drummer."  The  drummer,  at 
first,  was  employed  by  wholesale  houses  to  hang  around  ho- 
tels and  watch  for  the  arrival  of  retail  merchants  from  out 
of  town.  When  a  merchant  arrived  he  became  the  special 
recipient  of  every  kind  of  appeal  to  get  him  to  come  to  the 
house  represented  by  the  drummer  to  do  his  trading.  "  The 
country  merchant  is  booked  on  his  arrival,  is  captivated  by 
courtesy,  is  attracted  by  appeals  to  each  of  his  appetites  and 
passions,  is  coaxed,  decoyed,  and  finally  ensnared  or  cap- 
tured." ^ 

Later,  as  competition  among  the  wholesalers  grew  keener, 
the  drummer  was  sent  out  to  see  retailers  in  their  home 
towns,  to  get  their  promise  to  come  to  the  house  when  in  the 
market,  and  to  take  orders  whenever  possible.  As  the  prac- 
tice of  small-town  merchants  going  to  market  periodically 
decreased,  the  work  of  selling  to  the  retailer  in  his  own  store 
or  home  became  more  and  more  important.  Today, 
a  very  large  part  of  the  business  between  retailers  and  whole- 
salers is  transacted  through  the  medium  of  traveling 
salesmen. 

As  early  as  186Q  a  number  of  traveling  salesmen  were 
employed  by  wholesale  houses  in  New  York,  Chicago,  Cin- 
cinnati, and  other  jobbing  centers.^     After  the  Civil  War 

92;  Bankers'  Magazine  (1858),  12:545;  Hunt's  Merchants'  Magazine  (1851), 
24:46. 

5  Freedley,  E.  T.,  "United  States  Mercantile  Guide"   (1856),  p.  204. 

Q  Bankers'  Magazine,  12:545  ff;  Briggs,  "Fifty  Years  on  the  Road,"  Ch.  II; 
Yeakle,  M.  M.,  "  St.  Louis  of  To-day,"  p.  315. 


34 


ECONOMICS  OF  RETAILING 


their  number  increased  very  rapidly.  Chicago  wholesale 
houses  sent  their  representatives  out  over  the  Western 
prairies,  beyond  the  terminals  of  railroad  and  steamboat 
navigation.  Traveling  salesmen  with  their  trunks  loaded 
on  wagons  followed  the  pioneer  trails  to  mining  camps,  lum- 
ber camps,  trading  posts,  and  everywhere  that  a  store  ex- 
isted. Some  of  them  drove  across  the  mountains  to  Utah 
and  even  to  the  Pacific  Coast.  Chicago's  supremacy  over 
St.  Louis  as  a  wholesale  center  was  largely  due  to  this  early 
hustling,  and  the  Eastern  drummer  in  the  Northwest  was 
declared  to  be  a  thing  of  the  past  in  a  statement  made  in 
the  Chicago  Tribune  Annual  Review  of  Trade  and  Com- 
merce for  1869. 

With  the  beginning  of  this  system,  short  credits  grad- 
ually displaced  long  credits,  and  the  discount  for  cash  began 
to  be  generally  adopted.  Frequent  visits  of  the  salesmen 
made  it_possible_  to  order  in  smaller  lots :  hence  merchants 
were  able  to  keep  a  much  wider  variety  of  goods  and  to  fol- 
low  the  changes  in  fashionjTnore_easily.  By  the  introduction 
orihTs~new"systemofretail  store  buying  it  was  made  pos- 
sible for  great  masses  of  the  people  to  satisfy  thejr  desires 
for_iasliijQjis  in  a  way  that  had  never  before  been  possible. 
Henceforth  the  problem  became,  not  whether  fashion  was 
to  change  or  not,  but  rather  how  soon  it  was  to  change. 
Whether  for  good  or  evil,  the  length  of  time  formerly 
interposed  between  production  and  consumption  was  gener- 
ally reduced.  Not  only  did  this  make  frequent  changes  in 
fashion  possible,  but  it  opened  the  way  to  the  later  develojg- 
ment  of  large-scale  production  of  perishable  goods,  food- 
stuffs, and  so  on.  Some  of  the  most  remarkable  develop- 
ments in  the  distributive  system  during  the  last  twenty-five 
years  have  been  the  adaptations  in  methods  made  to  facili- 
tate very  rapid  distribution  over  wide  territory. 

The  development  in  this  country  of  the  retail  store  and 


THE  DISTRIBUTIVE  SYSTEM  35 

its  selling  methods  is  fully  as  interesting  as  that  of  the 
wholesale  house.  In  nearly  every  large  center,  the  earliest 
store  was  a  trading  post  where  furs  were  purchased  from 
the  Indians  and  trappers,  and  goods  of  various  kinds  given 
in  exchange.  The  trading  post  was  followed  by  the  general 
store,  a  type  that  is  still  found  in  a  great  many  country 
towns.  The  general  store  is  perhaps  the  most  typical  Amer- 
ican development  in  merchandising  institutions,  since  very 
few  like  it  are  to  be  found  anywhere  else  in  the  world.  The 
old-time  general  store  distributed  dry-goods,  hardware, 
groceries,  drugs,  and  even  (^iguor^^/  It  was  frequently  the 
location  of  the  post-office,  and  served  as  the  village  social 
center  for  the  men.  The  old  box  stove,  the  rickety  chair 
or  two,  the  near-by  barrels,  and  the  sawdust  spit  box,  were 
the  almost  universal  furnishings  that  equipped  it  for  its 
social  services.  Here  politics,  religion,  and  neighbors  were 
discussed.  It  may  not  be  too  much  to  say  that  here  the 
tariff  question,  the  government  bank,  internal  improvements, 
foreign  policies,  and  other  important  government  matters 
were  ultimately  settled.  Certainly  statesmen  had  to  reckon 
with  the  forces  of  public  opinion  generated  and  cultivated 
around  the  stove  of  the  country  store.  With  all  its  ineffi- 
ciency, its  wasteful  methods,  and  its  shortcomings,  as  a 
retail  establishment,  it  must  be  said  that  it  successfully 
served  its  day  as  probably  no  other  type  of  institution  could. 
Many  general  stores  still  exist  and  will  for  years  to  come. 
But  with  increasing  density  of  population  and  a  rising  stand- 
ard of  living,  the  general  store  as  such  must  give  way  to 
other  types  of  retailing  institutions. 

The  specialty,  or  one-line,  store  represents  the  next  stage 
in  the  development  of  retailing  in  this  country.  When  the 
demands  of  the  people  of  the  villages  became  numerous, 
when  the  variety  of  goods  offered  in  the  general  merchandise 
store  became  unsatisfactory,  then  came  the  one-line  specialty 


36  ECONOMICS  OF  RETAILING 

store  —  the  drug  store,  hardware  store,  agricultural  imple- 
ment dealer,  dry-goods  store,  grocery  store,  the  meat  market, 
men's  furnishings  and  clothing,  and  so  on.  Of  these  types 
of  stores,  and  still  later  forms  of  retail  institutions,  such 
as  the  department  stores  and  mail  order  houses,  we  need 
say  no  more  in  this  place.  Ample  space  is  given  to  each 
of  these  types  in  later  chapters. 

In  conclusion,  the  modern  distributive  system  consists 
essentially  of  two  middlemen  between  producers  and  con- 
sumers —  the  wholesaler  and  the  retailer.  The  wholesaler 
buys  in  large  quantity,  and  in  wide  variety,  generally  from 
many  producers,  assembles  these  stocks,  stores  them  for 
seasonal  demands,  oftentimes  sorts  and  repacks  the  goods, 
and  then  finds  the  customers  and  supplies  them  with  suitable 
quantities  at  suitable  times.  Credit  relations  are  estab- 
lished, the  importance  of  which  may  be  inferred  from  esti- 
mates of  the  average  amount  of  credit  granted  to  retailers. 
Such  estimates  run  from  $400,000,000  to  $750,000,000; 
that  is  to  say,  while  retailers  are  always  paying  up  their 
debts  to  wholesalers,  their  purchases  in  advance  of  payment 
always  run  up  into  the  hundreds  of  millions  of  dollars.  It 
is  not  unusual  for  a  wholesale  concern  to  have  as  many  as 
25,000  or  even  more  customers'  accounts  upon  its  books. 
Thus,  in  addition  to  its  other  functions  already  named,  the 
wholesaler  is  a  great  accounting  and  credit  agency  in  our 
business  system. 

In  the  lines  he  handles,  the  retailer  assembles  the  goods 
for  his  particular  community.  In  his  store  he  keeps  these 
goods,  presumably,  in  cleanly  condition,  preserved  from  ex- 
tremes of  heat  and  cold,  from  decay,  from  fire,  and  other 
forms  of  destruction  to  which  all  goods  are  subject.  He 
demonstrates  or  shows  the  consumer  how  the  goods  are  to 
be  used.     He  sells  and  generally  delivers  them.     Taking 


THE  DISTRIBUTIVE  SYSTEM 


37 


the  country  as  a  whole,  the  retailer  likewise  extends  an  enor- 
mous amount  of  credit  to  his  customers. 

Distributing  goods  through  wholesaler  and  retailer  may 
be  called  the  customary  or  regular  channel  of  distribution. 
From  this  method  there  are  many  variations.  In  some  lines 
there  are  more  than  these  two  links,  while  in  others  the  two 
have  been  concentrated  into  one.  The  struggle  for  markets 
among  producers  both  large  and  small  have  tended  to  make 
distribution  very  complex;  and  where  competition  is  free 
and  unchecked,  changes  from  one  system  to  another  are 
both  frequent  and  abrupt.  So-called  eliminations  of  mid- 
dlemen have  proceeded  from  both  ends  of  the  system. 
Many  large  retailers,  such  as  the  department  stores,  have 
sent  their  buyers  direct  to  the  producers  to  procure  supplies, 
while  many  of  the  producers  have  gone  direct  to  the  retailers 
and  even  to  the  consumers  with  their  goods.  There  has 
been  a  good  deal  of  experimenting  and  some  changing  back 
and  forth.  Not  all  changes  have  been  made  in  the  interests 
of  economy.  Friction  with  present  systems  has  been  not 
the  least  among  the  causes  for  establishing  new  channels 
in  many  cases.  As  an  illustration  of  the  number  of 
methods  of  distribution  employed  by  large  producers,  it  is 
a  fact  that  out  of  102  concerns  doing  national  advertising, 
17  sell  to  jobbers,  18  to  retailers,  11  through  agencies,  and 
8  to  consumers  direct;  29  sell  to  both  jobbers  and  retailers, 
13  to  retailers  and  through  agencies,  4  to  jobbers,  retailers, 
and  through  agencies,  1  to  both  consumers  and  retailers,  and 
1  to  jobbers,  retailers,  and  consumers."^ 

To  give  a  clear  idea  of  the  customary  channels  of  dis- 
tribution in  the  main  lines  of  trade  passing  from  the  pro- 
ducer to  the  consumer  through  retail  stores,  the  following 
charts  are  presented: 

7  Printers'   Ink.    Sept.    12,   1912. 


38 


ECONOMICS  OF  RETAILING 


The  Channels  of  Distribution  for  Various  Lines  of  Goods 
Groceries  Farm  Products  Light  Hardware 


Manufacfurer 


Wholesaler 


Refoil 


consumer 


Prodi 


Local  Buycc 


Com  mission  Man 
orWholesaler 


Ret 


erai  ler 


consumer 


ManufacfL 


Whol( 


Re^iler 


consumer 


Heavy  Hardware 

Silverware 

^nufacturer 

* 

Manufecfurer 

^  ^^ 

\ 

^^ 

^^^     "^^ 

R^ailer 

Jobber 

Retoil^r 

Agency 

*-^ 

--.^   ^^ 

^,     ■' 

Re-lhiler 

Conaumcr 

GDnsumer 


THE  DISTRIBUTIVE  SYSTEM 


39 


Drugs 


"^anufocfurer 


Large  Reialer 


Jobber 


Refeiler 


Consumer 


Shoes 


Harvesting  Machinery 

Wonufachirer 

1 

Geni  Agenl: 

^ 

-- 

^^    ^--^ 

^ 

^^^^^ 

Block  men  4 

Relailer 

1 

/ 

Canvassers 

\             / 

'--^ 

^^ 

^../ 

Consumer 

40 


ECONOMICS  OF  RETAILING 


Textiles 


Monufac+i 


CommisaonH's 


Oepi"  Ofore         CIcsttiingKfi: 


Co-Operative  Fruit  Marketing 


GSOOfWucers 

Jobber 

17  Dislricf 
Exchonoes 

1 

Reiailer 

California  fruit 
Grorrers  Ex. 

\ 

1 

N. 

Auctions 

^« 

Ns^^ 

\^^ 

1         ^ 

\^^ 

^^^^ 

Nv 

Jobber 

\. 

Jobber 

N. 

1 

\v 

1 

\ 

Reiailer 

Retailer 

\ 

X, 

1 



— ■ — 

Consumer 

CHAPTER  III 
THE  CONSUMER 

The  function  of  the  retail  store  is  to  provide  its  cus- 
tomers with  the  goods  they  want  —  when,  where,  and  how 
they  want  them.  Efficiency  in  retaiHng  consists  in  fur- 
nishing this  service  satisfactorily  and  economically.  This 
service  must  be  satisfactory  to  the  consumer  in  order  to  gain 
his  good  will,  and  it  must  be  economical  in  order  that  it  may 
not  cost  the  consumer  any  more  than  is  necessary.  Under 
competition  the  concerns  that  can  perform  this  service  most 
economically  are  able  to  reap  the  greatest  net  profits.  Prog- 
ress in  retailing  should  lead  continually  to  better  and  better 
service  at  relatively  lower  costs. 

In  planning  the  work  of  a  store  it  must  be  borne  in  mind 
continually  that  the  consumer  is  the  party  that  ultimately 
determines  what  shall  be  and  what  shall  not  be  in  the  retail- 
ing as  well  as  in  the  entire  business  system.  What  may  at 
one  time  and  in  one  way  seem  very  satisfactory  and  most 
economical  to  the  retailer,  may  not  be  satisfactory  at  all  to 
the  consumer  and  cannot  therefore  result  in  success.  It  may 
be  said,  perhaps,  that  the  best-planned  system  of  retailing 
from  a  theoretic  standpoint  might  not  be  suitable  for  a  given 
community  or  even  for  any  part  of  the  whole  country,  sim- 
ply because  consumers  as  a  class  may  not  be  ready  to  appre- 
ciate it  as  such.  There  must  be  development  on  both  sides 
in  order  that  the  system  of  distribution  may  progress.  The 
consumers'  point  of  view  is  fundamental.  It  may  be 
changed  and  is  constantly  changing,  but  unless  the  retailer 

41 


42 


ECONOMICS  OF  RETAILING 


is  able  to  make  his  business  accord  with  it,  he  stands  little 
chance  of  continuing  in  business.  In  fact,  it  may  be  asserted 
that  success  in  retailing  depends  entirely  upon  finding  out 
what  the  people  want  and  then  performing  that  service  for 
them  as  economically  as  possible. 

Who  are  the  consumers  ?     What  do  they  want  ? 

The  consumers  of  the  country  are  its  hundred  million 
of  men,  women,  and  children.  What  they  want  depends 
upon  their  respective  ages,  sex,  habits  —  social  and  per- 
sonal—  and  their  occupations,  and  how  much  they  want 
depends  largely  upon  their  incomes  or  wealth. 

Under  most  circumstances,  demands  for  goods  come  only 
from  adults  or  persons  above  the  ages  of  childhood.  Par- 
ents select  goods  not  only  for  themselves  but  also  for  their 
children.  This  is  the  rule  the  world  over.  But  in  this 
country  there  are  several  notable  exceptions.  Children  of 
foreigners  learn  the  English  language  much  more  quickly 
than  their  parents,  hence  frequently  serve  as  interpreters 
for  the  family.  They  begin  to  read  the  English  advertising, 
study  the  goods  at  the  stores,  and  are  influenced  by  fashion 
changes  more  quickly  than  their  elders.  To  some  extent, 
children  thus  buy  or  influence  the  buying,  not  only  of  goods 
for  themselves,  but  also  for  their  homes. 

Among  the  American  people  of  the  richer  classes,  the 
birth  rate  of  children  has  fallen  off  markedly  during  the 
last  fifty  years,  and  this  tendency  to  reduce  the  number  of 
children  per  family  has  probably  not  yet  reached  its  limit. 
One  of  the  effects  of  this  tendency  of  interest  to  distributors 
of  goods,  particularly  retailers,  is  that,  as  there  become 
fewer  children  per  family,  the  attention  given  to  each  child 
increases.  This  attention  takes  two  forms,  one  to  supply 
all  its  needs  and  demands  much  more  completely  than  could 
otherwise  be  possible,  and,  second,  to  give  more  freedom  to 
the  child  to  satisfy  its  own  demands.     The  few^er  the  chil- 


THE  CONSUMER 


43 


dren,  the  more  the  money  for  each  child  to  spend.  In  con- 
sequence, children  of  native-born  parents  especially,  begin 
to  demand  and  to  buy  goods  of  a  great  variety  at  an  early 
age.  Children's  movements  such  as  "  Boy  Scouts,"  "  Camp- 
fire  Girls,"  marble  playing,  baseball,  roller-skating,  and  so 
on,  sweep  over  a  town  with  remarkable  rapidity,  simply 
because  the  wherewithal  to  supply  the  necessary  material 
equipment  is  provided  to  the  child  by  its  parents  when 
wanted.  The  present  has  been  called  the  ''  age  of  the 
child,"  and  this  should  be  a  matter  of  significance  to  the 
retailer  in  making  his  plans.  The  store  must  be  arranged 
to  show  its  goods  in  a  way  to  appeal  to  the  age  of  people 
who  constitute  its  customers.  What  suits  one  age  may  not 
suit  another.  The  growth  of  the  influence  of  children  in 
the  markets  and  merchandise  of  this  country  during  the 
last  generation  is  much  greater  than  is  generally  realized. 

Sex  makes  a  great  deal  of  difference  in  demand,  not 
only  in  the  obvious  differences  in  the  goods  used,  but  also  in 
the  manner  in  which  the  goods  are  bought  from  stores.  It 
is  commonly  asserted  that  it  takes  more  time,  and  that  it 
is  harder  to  please  and  to  sell  to  women  than  to  men.  It  is 
probable  that  many  of  the  differences  that  have  been  pointed 
out  between  the  sexes  in  their  buying  habits  are  exaggerated, 
but  there  are  certainly  differences  that  need  to  be  noted. 

A  generation  ago  women's  time  was  so  completely  taken 
up  with  the  household  industries  in  the  home,  many  of 
which  are  now  performed  in  factories,  that  they  had  very 
little  time  to  spend  in  shopping.  Then  men  did  practically 
all  of  the  buying  for  their  families.  Now  this  practice  is 
quite  reversed.  Women  have  been  set  free  from  a  great 
deal  of  the  arduous  hand  labor  characteristic  of  the  past, 
and  have  become  purchasers  rather  than  producers  of  the 
products  needed  in  the  home.  It  has  been  estimated  by  a 
number  of  people  that,  at  the  present  time,  at  least  75  per 


44 


ECONOMICS  OF  RETAILING 


cent,  possibly  more,  of  the  goods  used  in  the  home  are 
purchased  by  women.  This  appHes  not  only  to  goods  used 
by  the  women  themselves  and  by  children,  but  also  to  food- 
stuffs and  house  furnishings.  Even  men's  clothing,  par- 
ticularly furnishings,  are  now  purchased  very  largely  for 
them  by  women.  The  woman  is  the  purchasing  agent  for 
the  home  in  an  increasingly  large  number  of  cases.  Retail- 
ing in  all  lines  must  take  this  into  account. 

Women  are  harder  to  sell  to  than  men  because  as  a 
rule  they  have,  or  think  they  have,  more  time  to  shop  than 
men  do.  Practice  in  looking  over  stocks  of  goods  affords 
them  much  real  enjoyment.  Most  women  like  to  shop. 
Only  a  few  men,  relatively  speaking,  enjoy  shopping. 
Women,  as  a  rule,  rely  more  on  their  ow^n  senses  and  less 
on  brand  names  than  men  do  in  buying.  They  also  read 
descriptions  and  note  details  more  carefully.  The  struggle 
of  American  families  for  social  place  and  for  more  complete 
satisfaction  of  a  very  wide  variety  of  wants  causes  many 
women  to  think  more  of  the  pennies  than  men  do.  For  this 
reason,  sales  at  reduced  prices  mean  much  more  to  women 
than  to  men.  The  problem  of  making  a  little  money  go  a 
long  way  under  pressure  of  an  increasing  cost  of  living  is 
one  that  women  are  meeting  by  giving  more  and  more  care- 
ful attention  to  details  in  their  shopping.  Still  another  fac- 
tor to  be  considered  is  the  specific  instruction  now  being 
given  to  young  women  in  hundreds  of  schools  in  domestic 
science,  in  studies  of  textiles  and  foodstuffs.  Such  educa- 
tion will  tend  to  make  women  still  more  critical  purchasers, 
and  the  retail  store  must  be  adapted  to  meet  this  develop- 
ment.^ 

1  Other  sex  differences  may  be  noted  briefly  as  follows:  Scientists  affirm  that 
women  are  less  often  color-blind  than  men.  It  is  asserted  that  a  woman  has  a 
much  wider  range  of  vision  than  a  man  has.  With  her  eyes  fixed  straight  ahead 
she  observes  persons  and  things  farther  right  and  left  than  men  do.  Women 
excel  men  in  grasping  the  meaning  of,  or  comprehending,  paragraphs.  "  Women 
go  in  flocks,  and  in  social  matters  are  less  prone  to  stand  out  with  salient  indi- 


THE  CONSUMER  45 

Since  women  are  now  the  chief  customers  of  retail  stores 
in  practically  all  lines,  the  stores  must  seek  to  meet  women's 
standards  and  demands  rather  than  men's.  What  was  sat- 
isfactory to  men  in  the  past  is  not  wholly  satisfactory  to 
women  now.  Retailers  who  have  grasped  this  idea  and 
have  made  their  stores  conform  to  it  in  such  details  as  clean- 
liness, fixtures,  lighting,  decorations,  display  of  goods,  and 
personal  service,  have  reaped  large  rewards,  while  those  who 
have  not  observed  these  changing  conditions  have  passed 
out  in  failure. 

Habits  of  customers  are  exceedingly  important  factors 
in  determining  how  a  retail  store  shall  be  carried  on.  We 
may  distinguish  between  those  that  many  people  possess  in 
common  and  those  which  only  single  individuals  have.  The 
first  may  be  called  social  habits,  customs,  and  conventions, 
and  only  the  latter  are  designated  simply  as  habits.  Of 
the  two  classes,  the  social  habits  are  most  important  in  lay- 
ing out  the  plan  of  a  store's  work  and  its  general  policies. 
The  latter  must  be  met  by  the  individual  salesmanship  of  the 
retailer  and  his  clerks. 

Customs  depend  upon  race,  nationality,  and  community. 
There  are  national  foods,  drinks,  and  clothing.  There  are 
types  of  architecture  and  house  furnishings  that  are  pe- 
culiar to,  or  at  least  originate  in,  certain  countries.  What 
one  race  of  people  may  like,  another  race  may  find  very  dis- 
tasteful.    In  a  country  such  as  the  United  States  where  all 

viduality.     They    are    more    emotional,   altruistic,    intuitive,    less    judicial,    and    less 
able  to  make   disinterested  and   impersonal   judgment." 

'■'  Women  excel  in  memory."  A  woman's  thoughts  are  more  concrete  and 
are  more  likely  to  relate  to  practical  things  of  interest  to  herself.  Men  theorize 
and  generalize  more.  Out  of  483,517  patents  recorded  in  Washington  up  to 
October,  1892,  only  3,458  were  by  women.  Women  are  more  tactful  and  are 
able  to  extricate  themselves  from  difficulties  more  readily  than  men.  "  Old 
women  are  likely  to  be  talkative,  while  old  men  are  glum."  "  Male  crime  to 
female  is  as  6  to  1."  "  She  is  about  as  superior  to  man  in  altruism  as  she 
is  behind  him  in  truth-telling,  being  more   prone  to  ruse  and  deception." 

"  Influence  and  suggestion  are  more  potent  than  argument  with  women.  They 
are  more  emotional,  blush  and  cry  easier;  and  are  more  often  hypnotized.  They 
have  more  sympathy,  pity,  charity,  generosity,  and  superstition." 

Hall,  G.    S.,  "Adolescence,"   Vol.   II,  pp.   561-567. 


46  ECONOMICS  OF  RETAILING 

races  are  found,  these  racial  and  national  variations  consti- 
tute a  big  problem  for  the  distributor. 

For  example,  it  is  said  that  the  French  people  eat  little 
or  no  cereal  for  breakfast.  For  them  breakfast  foods  have 
no  appeal.  Sour-tasting  foods  are  much  favored  by  the 
Germans.  The  English  are  great  consumers  of  tea  and 
crackers.  Olive  oil  or  imitations  of  it  are  much  in  demand 
among  the  people  from  South  Europe,  and  everyone  has 
read  and  heard  of  the  part  played  in  food  supply  by  beans 
in  New  England,  red  peppers  in  the  Southwest,  corn  bread 
in  the  South,  potatoes  in  Ireland,  oatmeal  in  Scotland,  rice 
in  Japan.  The  usual  statements  regarding  the  use  of  these 
foods  by  nations  are  greatly  exaggerated,  but  the  kernel  of 
truth  is  suggestive  to  the  retailer.  A  store  in  a  community 
made  up  mostly  of  Germans  must  offer  a  somewhat  different 
supply  of  goods  and  furnish  a  somewhat  different  service 
than  that  demanded  by  people  in  communities  made  up  of 
French,  English,  or  other  nationalities. 

Community  habits  are  of  more  direct  significance  still. 
The  resources  of  the  region,  the  development  of  social  stand- 
ards of  consumption,  and  the  gradual  unification  of  wants 
according  to  the  classes  of  people  found  in  the  community, 
are  factors  making  for  definite  lines  of  merchandising. 
Country  districts  differ  from  small-town  communities,  and 
the  latter  from  large  towns  and  cities.  The  relationship  of 
the  store  to  the  community  in  each  case  is  somewhat  dif- 
ferent, and  the  power  of  the  retailer  to  vary  the  conditions 
set  before  him  also  differs. 

Manufacturers  recognize  differences  in  the  character  of 
demand  in  various  parts  of  the  country.  '*  Metropolitan  " 
and  "  Western  "  styles  are  two  distinct  classes.  Groceries, 
soaps,  and  so  on  are  put  up  in  certain  ways  for  "  Southern 
trade."  Maps  might  be  made  of  the  country  showing  divi- 
sions not  by  states  but  by  parts'  of  the  country  where  various 


THE  CONSUMER 


47 


kinds  of  goods  are  consumed.  Thus  green  tea  areas  would 
be  found  largely  separated  from  black  tea  areas,  mackerel- 
eating  areas  from  herring  areas,  and  so  on.  We  should  be 
able  to  locate  sauerkraut  areas,  corn-bread  areas  perhaps, 
extreme-styles  areas,  conservative-styles  areas,  carpet-using 
areas,  rug-using  areas,  in  addition  to  areas  producing  spe- 
cific products  used  very  largely  at  home.  In  the  big  cities 
of  the  East  brown  colored  eggs  are  considered  choicest,* 
while  Ttr~SanFranci  SCO  white  eggs  are  considered  most 
valuable.  Corn  meal  must  be  somewhat  yellow  in  the  North, 
but  white  in  the  South.  The  extent  of  such  differences 
and  their  effects  on  distribution  —  matters  that  are  but  im- 
perfectly understood  at  the  present  time  —  constitute  one 
of  the  big  problems  of  the  economical  distribution  of  goods. 

Notwithstanding  the  differences,  there  are  a  sufficient 
number  of  similarities  to  warrant  some  general  statements. 
For  example,  in  dealing  with  the  subject,  "  Consumers' 
Fancies,"  a  writer  in  the  Year  Book  of  the  U.  S.  Depart- 
ment of  Agriculture  (1904),  page  434  and  following,  called 
attention  to  certain  factors  in  consumers'  demand  that  will 
interest  retailers,  particularly  grocers: 

"  The  consumer  has  a  fondness  for  red,  white,  and  the 
colorless,  and  sometimes  for  yellow  when  reinforced  with 
large  size.  Gloss,  polish,  and  luster  are  wanted.  Things 
should  be  large,  and  when  applicable,  of  plump  appearance ; 
they  should  be  uniform  in  size,  shapely,  and  with  ornamental 
lines.  A  convenient  and  showy  package  is  appreciated  and 
a  product,  trade,  or  producer's  name,  once  established  favor- 
ably, catches  the  fancy  of  customers  often  more  easily  and 
securely  than  anything  else." 

The  extent  of  demand  depends  not  only  upon  customers 
and  conventions,  but  also  on  spending  power.  Demand  is 
like  a  coiled  spring  under  pressure.  The  pressure  is  the 
limit  set  to  spending  by  the  limits  of  the  pocketbook.     But 


48  ECONOMICS  OF  RETAILING 

the  use  of  income  is  not  in  all  communities  the  same.  Much 
depends  upon  whether  the  families  own  their  homes  or  not, 
whether  they  are  secure  in  their  source  of  income  or  not,  and 
upon  the  prospects  for  future  prosperity  in  the  community. 
People  who  rent  their  homes,  as  a  rule,  spend  a  larger  share 
of  their  total  income  for  daily  needs  than  people  who  are 
buying  and  paying  for  homes.  The  spirit  of  economy  is 
stronger  in  the  latter  case.  Prospects  of  future  plenty,  as 
for  example,  good  crops,  a  growing  or  booming  city,  in- 
coming industries,  and  other  evidences  of  community  pros- 
perity, tend  to  cause  the  people  to  spend  more  freely  what- 
ever money  they  may  have  than  is  the  case  under  indica- 
tions of  hard  times,  retrograding  business,  and  so  on. 

General  statistics  of  family  incomes  are  of  some  value, 
although  when  applied  to  any  given  locality,  they  need  to  be 
qualified  to  suit  the  peculiarities  of  that  locality.  The  table 
on  page  49  was  published  by  Printers'  Ink  in  1911,  from 
such  census  statistics  as  were  available.  It  is  probably  not 
free  from  error,  but  it  will  serve  the  purposes  of  this  chap- 
ter, which  is  merely  to  indicate  the  outlines  of  the  con- 
sumer problem. 

The  total  income  of  $23,800,000,000  is  divided  among 
savings  and  expenses,  and  estimates  on  outlays  for  con- 
sumers' goods  run  as  high  as  $20,000,000,000  annually. 
The  usual  classifications  of  expenses  are  as  follows,  in  the 
order  of  their  importance: 

^        Food 
Rent 
Clothing 
Fuel  and  light 
Miscellaneous  items 

Omitting  rent,  since  this  item  is  not  dealt  with  through 


THE  CONSUMER 


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50  ECONOMICS  OF  RETAILING 

retail  stores,  the  following  is  presented  as  one  of  the  typical 
estimates  of  national  consumption  in  several  lines  of  goods :  ^ 

Food    $6,552,000,000 

Men's   clothing    686,400,000 

Women's  clothing 520,000,000 

Children's  clothing 972,000,000 

Shoes 520,000,000 

Furniture    520,000,000 

Books  and  papers 166,400,000 

The  following  estimates  of  consumption  in  specific  lines 
have  been  drawn  from  various  sources : 

Sugar    81.6  lbs.  per  capita  (1910)  U.  S.  Statistical  Abstract 

Coffee    10.0"  "  "  (1911)  U.  S.  Statistical  Abstract 

Cocoa   1.25  "  "  "  (1910)  U.  S.  Statistical  Abstract 

Tea    1.4   "  "  "  (1911)  U.  S.  Statistical  Abstract 

Shoes    $8.44  "  "  Good  Storekeeping,  1 :2 

Wool    5.25  lbs.    "  "  U.  S.  Department  of  Agriculture 

Cotton 20.0    "  "  "  U.  S.  Department  of  Agriculture 

Tobacco  5.7    "  "  "  U.  S.  Department  of  Agriculture 

Soda    water $1.20  "  "  Drygoodsman,  Aug.  26,  1911 

Alcoholic  liquors. $21.85  "  "  Bradstreets',  June  25,  1910 

Crackers    $1.00  "  "  National  Biscuit  Company 

Flavoring  ex- 
tracts      $1.00  "  "  Joseph  Burnett  Company 

Another  and  more  scientific  way  has  been  used  in  arriv- 
ing at  per  capita  consumption,  and  that  is  by  getting  the  fig- 
ures from  the  consumers  themselves.  A  number  of  such 
investigations  have  been  made  during  the  last  sixty  years, 
but  in  the  nature  of  the  case  each  was  limited  in  scope.  The 
results  of  these  investigations  were  very  well  summed  up 
in  the  report  of  the  Massachusetts  Cost  of  Living  Commis- 
sion in  1910.  This  summary  will  be  found  in  Appendix  I, 
from  which  the  following  sentences  are  quoted :  "  It  would 
be  safe  to  deduce  from  these  tables  a  few  generalizations 
about  the  expenditure  of  the  income  of  a  workingman's 

2  "  National   Advertising  the  Modern  Selling  Force,"   p.   44    (Curtis   Publishing 
Co.). 


THE  CONSUMER  5 1 

family  under  normal  conditions.  For  weekly  incomes  of 
from  $12  to  $18  a  week,  the  income  would  usually  be  spent 
about  as  follows:  rent,  18-20  per  cent;  fuel  and  light,  5  per 
cent ;  clothing,  14  per  cent ;  food,  43-45  per  cent ;  sundries, 
15-17  per  cent.  This  analysis  may  not  fit  the  expenditures 
of  many  families,  but  it  would  probably  be  found  that  nor- 
mal families  with  incomes  of  the  amount  stated  tend  to 
approach  these  figures." 

The  following  table  is  quoted  because  it  gives  in  greater 
detail  the  items  of  expenditure  for  typical  workingmen's 
families : 

Average  Expenditure  of  2,567  Workingmen's  Fam- 
ilies FOR  Each  of  the  Principal  Items  Entering 
into  Cost  of  Living  and  Per  Cent  of  Average 
Total  Expenditure,  1901.^ 

Expenditure  Based  on 
Items  of  Expenditure  All  Families 

Per    Cent 
of    Total 
Average  Expenditure 

Food  $326.90  42.54 

Rent    99.49  12.95 

Mortgage : 

Principal 8.15  *          '         1.06 

Interest 3.98 1  .52 

Fuel    32.23  4.19 

Lighting    8.15  1.06 

Clothing: 

Husband    33.73  4.39 

Wife   26.03  3.39 

Children 48.08  6.26 

Taxes   5.79  .75 

Insurance : 

Property 1.53  .20 

Life 19.44  2.53 

*  Including  interest   paid  by  13   families. 

t  Not  including  interest  paid  by  13  families,  included  in  principal. 
3  From   Eighteenth   Annual   Report  of  the   U.    S.    Commissioner   of  Labor,   p. 
648. 


52  ECONOMICS  OF  RETAILING 

Expenditure  Based  on 
Items  of  Expenditure  All  Families 

Per  Cent 
of  Total 
Average  Expenditure 

Organizations : 

Labor    3.87  .50 

Other    5.18  .67 

Religious  purposes  7.62  .99 

Charity 2.39  .31 

Furniture    and    utensils 26.31  3.42 

Books  and  newspapers 8.35  1.09 

Amusements  and  vacations. 12.28  1.60 

Intoxicating  liquors 12.44  1.62 

Tobacco 10.93  1.42 

Sickness  and  death 20.54  2.67 

Other  purposes   45.13  5.87 


Total $768.54  100.00 

The  averages  presented  in  the  preceding  tables  repre- 
sent standards  which  may  be  fairly  representative  of  whole 
classes  of  our  population,  but  from  which  individual  fam- 
ilies vary.  It  is  probably  true  that  most  people  consume 
amounts  close  to  the  average  for  their  class ;  but  in  planning 
a  retail-store  selling  system  it  is  necessary  to  go  still  fur- 
ther and  ask  what  causes  the  variations  from  the  average 
and  what  the  likelihood  is  that  there  may  be  such  variations. 
Every  family  must  have  food  and  clothing,  but  some  families 
will  economize  in  food  in  order  to  buy  more  clothing,  while 
others  will  do  the  opposite.  Which  a  particular  customer  will 
do  will  depend  much  upon  personal  habits,  personal  peculiar- 
ities, and  the  strength  of  the  appeals  made  for  the  goods  of 
the  various  classes  by  advertising  or  by  salesmen.  In  an 
investigation  made  by  the  Chicago  Tribune  in  1913  as  to 
why  some  30,000  housekeepers  had  purchased  certain  food 
products,  it  was  found  that  — 


THE  CONSUMER  53 

55%  of  the  housekeepers  were  influenced  by  retailers 
36%   "     "  "  "  "  "  advertising 

6%  "     "  "  "  "  "  friends 

It  is  clear,  therefore,  that  the  suggestion  and  salesman- 
ship of  the  retailer  was  a  powerful  factor  in  introducing 
new  articles  to  the  customer.  Added  to  this  is  the  influence 
of  advertising,  calling  for  the  use  of  funds  in  a  hundred 
different  ways. 

The  saving  instinct  in  some,  the  love  of  finery,  the  stand- 
ards of  spending  of  the  class  to  which  the  consumer  aspires 
to  belong,  the  appeal  of  the  goods  themselves  —  as  for  ex- 
ample, that  they  save  time  or  labor,  or  give  comfort,  pro- 
tection, or  pleasure  —  all  tend  to  have  their  effect  on  the 
ultimate  division  of  the  family  income  between  the  various 
classes  of  goods.  What  constitutes  a  strong  appeal  to  one 
may  not  have  any  influence  with  another.  It  is  only  in 
the  most  general  way  that  we  can  say  that  all  people's  de- 
mands for  goods  are  alike. 

"  Consumer-demand  "  *  is  constantly  changing.  With 
this  fact  everybody  is  familiar.  In  foodstuffs,  desire  has 
increased  for  greater  variety  and  finer  quality.  Attention 
is  now  being  given  as  never  before  to  the  appearances  of 
food,  its  flavor,  taste,  and  its  appeal  to  the  aesthetic  senses. 
In  clothing,  fashion  now  rules  among  practically  all  classes. 
Clothes  no  longer  wear  out;  they  pass  out.  Faded  or 
threadbare  suits  are  rarely  ever  seen.  In  the  homes  there 
has  grown  up  a  demand  for  more  room,  more  light,  more 
fresh  air,  and  for  a  well-regulated  temperature.  Furniture 
and  furnishings  as  well  as  the  building  itself  are  touched  by 
fashion  and  conventionality.     The  standards  of  classes  en- 

4  "  Consumer-demand  "  is  a  term  that  has  recently  come  into  use  among  pro- 
ducers who  are  national  advertisers.  It  is  used  in  contradistinction  to  "  dejiler- 
demand."     The  meanings  are  obvious. 


54  ECONOMICS  OF  RETAILING 

joying  leisure  and  wealth  have  been  selected  as  the  types 
for  popular  imitation,  moderated  to  a  limited  extent  by  the 
influence  of  culture  spread  by  the  schools  and  literature  now 
enjoyed  by  all  classes. 

Illustrations  of  these  changes  are  available  on  every 
hand.  Families  no  longer  lay  in  "  a  winter's  supply  "  of 
any  kind  of  food.  Such  storing  of  foods  is  no  longer  neces- 
sary. The  means  for  better  storage  on  a  large  scale  have 
been  invented,  and  the  people  have  gladly  availed  themselves 
of  these  and  thus  eliminated  all  the  risk  and  trouble  con- 
nected with  collecting  and  storing  foods  at  home  for  long 
periods.  The  waste,  the  spoilage,  and  the  capital  formerly 
tied  up  in  the  big  family  supplies,  as  well  as  the  labor  of 
canning,  preserving,  and  pickling,  and  the  general  lack  of 
variety  characteristic  of  this  way  of  doing  things,  has  been 
largely  eliminated  by  the  introduction  of  this  large-scale 
commercial  cold  storage,  by  the  wholesale  canning  and 
preserving  of  fruits  and  vegetables,  and  by  the  preparation 
of  foods  for  distribution  in  small  parcels  or  packages. 

A  general  idea  of  the  extent  to  which  this  process  has 
been  carried  and  the  possibility  of  a  varied  diet  today  as 
compared  with  that  of  a  generation  ago  when  there  were  no 
canned  goods  other  than  those  prepared  at  home,  can  be 
gained  from  running  over  the  following  list  of  canned 
goods.  This  is  by  no  means  complete,  but  represents  fairly 
the  goods  a  modern  grocery  store  expects  to  supply  its  cus- 
tomers. 

Apricots,  anchovies,  apples,  apple  sauce,  artichokes,  as- 
paragus, baked  beans,  lima  beans,  kidney  beans,  string  beans, 
wax  beans,  blackberries,  black  raspberries,  red  raspberries, 
strawberries,  huckleberries,  beets,  brown  bread,  carrots,  cauli- 
flower, celery,  cherries,  clams,  corn,  crabs,  cranberries,  cran- 
berry sauce,  currants,  dandelions,  figs,  fish,  game,  grapes, 
guavas,  gumbo,  hominy,  jams,  jellies,  catsup,  lentils,  lobster, 


THE  CONSUMER 


55 


meats,  milk,  mincemeat,  molasses  and  syrups,  mushrcMDms, 
nectarines,  okra  and  tomatoes,  oysters,  parsnips,  peaches, 
peas,  peppers,  pigs'  feet,  pineapple,  plum  pudding,  plums, 
poultry,  preserves,  pumpkins,  quinces,  rhubarb,  salmon,  sar- 
dines, sauce,  sauerkraut,  shrimps,  soups,  spaghetti,  spinach, 
squash,  succotash,  sweet  potatoes,  sprouts,  tamales,  terrapin, 
tomatoes,  turnips,  turtle. 

The  term  meats  in  this  list  could  be  divided  into  a  dozen 
or  more  articles  little  known  to  the  public,  and  the  word 
fish  stands  for  nearly  as  large  a  variety  of  canned  food. 

Much  has  recently  been  said  concerning  the  increasing 
costs  of  food  due  to  the  use  of  cans  and  packages.  The 
New  York  State  Food  Investigating  Commission,  the  Massa- 
chusetts Cost  of  Living  Commission,  as  well  as  many  other 
bodies  and  individuals,  have  held  that  the  tendency  to  sell 
goods  in  this  form  is  one  of  the  causes  of  the  increased  cost 
of  living.  That  this  is  true  there  can  be  no  doubt,  but  that 
the  use  of  receptacles  of  this  kind  is  therefore  undesirable 
is  quite  another  question.  The  rapid  extension  of  their  use 
seems  to  indicate  a  growing  instead  of  a  diminishing  popu- 
lar favor.  The  arguments  commonly  advanced  in  favor  of 
package  and  can  goods  are  as  follows : 

1.  Goods  are  kept  in  better  condition,  free  from  dust  and 
handling. 

2.  Keeping  qualities  are  enhanced. 

3.  Cost  of  handling  in  the  retail  store  is  reduced.  It  is 
easy,  as  far  as  handling  is  concerned,  to  sell  a  package  or 
can  ready  for  passing  across  the  counter.  Such  goods  can 
be  sold  to  the  consumer  at  a  lower  margin  of  gross  profit 
than  bulk  goods  of  the  same  class. 

4.  There  is  less  waste  both  in  the  store  and  in  the 
homes,  the  waste  formerly  resulting  from  handling,  weigh- 
ing, packing,  and  so  on,  being  largely  eliminated. 

5.  The  package  or  can  is  more  attractive  than  goods  of 


56  ECONOMICS  OF  RETAILING 

like  character  in  bulk.  While  the  number  of  grams  of  food 
elements  in  a  package  are  not  changed  a  bit  by  its  appear- 
ance, it  is  well  known  that  the  consumer's  appetite  is  de- 
cidedly affected  by  it.  The  attractive  food  container  as  well 
as  the  table  linen  and  silver  are  elements  in  consumption  that 
people  now  demand. 

6.  The  use  of  canned  goods  gives  even  to  the  family  of 
moderate  income  an  opportunity  to  use  a  wide  variety  of 
foods  from  all  parts  of  the  world. 

7.  The  contents  of  a  can  or  package  are  usually  of  such 
quantity  as  may  be  served  and  consumed  in  a  short  time. 
The  consumers  do  not  grow  tired  of  the  food  as  they  did 
when  they  ate  oatmeal  porridge  made  from  oatmeal  out  of 
the  barrel  every  morning  all  year  long.  The  use  of  canned 
and  packaged  goods  permits  of  frequent  changes  in  diet. 

8.  All  parts  of  the  foods  that  are  packaged  or  canned 
are  edible,  and  many  such  foods  are  ready-cooked.  There 
is  no  waste.  The  unedible  parts  are  removed  at  the  fac- 
tories and  made  up  into  by-products,  while  under  the  old 
methods  of  home  food  production  such  materials  were  very 
largely  thrown  away,  especially  in  the  cities.  Much  of  the 
packing,  as  well  as  other  operations  of  food  preparation, 
are  done  by  machinery  with  great  saving  of  labor. 

That  food  in  cans  and  packages  costs  more  than  in  bulk 
as  formerly  sold  there  can  be  no  doubt.  If  consumers  desire 
their  foods  in  these  new  forms,  they  must  pay  the  added 
expense  of  preparing  them.  It  is  also  likely  that  in  the 
case  of  some  of  these  goods  the  margins  of  profit  are  much 
higher  than  with  similar  bulk  goods.  This  may  be  ac- 
counted for  partly  by  the  novelty  of  the  product,  its  imme- 
diate success,  and  the  lack  of  the  keen  competition  that  is 
likely  to  develop  in  the  course  of  time.  That  the  demand 
for  food  in  small  lots  put  up  in  attractive  form  is  here  to 
stay,  seems  certain. 


THE  CONSUMER  57 

Many  illustrations  could  be  given  of  changes  in  the 
character  of  demand  for  clothing.  For  example,  men's  $10 
suits  of  clothes  have  given  way  to  $15  to  $25  suits ;  women's 
corsets  for  25  cents  up  to  75  cents  have  been  displaced  by 
those  selling  from  $1  up  to  $3  and  more.  Boots  for  men 
gave  way  to  congress  shoes,  and  congress  shoes  to  lace  and 
button  shoes.  Copper-tipped  shoes  for  children  are  now 
unknown.  Fifteen  years  ago  nearly  all  men  shone  their 
own  shoes.  Now  shoe-blacking  is  hardly  ever  sold  to  people 
living  in  the  richer  homes.  Shoes  are  polished  by  boot- 
blacks and  in  so-called  "  shoe-shining  parlors."  The  shawl 
for  men  and  for  women  is  gone,  as  is  the  paper  collar,  dickie, 
and  cuffs  for  men.  Heavy  underwear  has  been  discarded 
for  much  lighter  weights  but  of  much  finer  grades.  Cloth- 
ing for  women  and  children,  nearly  all  made  in  the  homes 
a  score  of  years  ago,  is  now  largely,  probably  half  of  it, 
made  outside  of  the  homes,  in  factories.  Entire  families  of 
children  were  once  dressed  in  clothing  made  from  fabric  of 
the  same  pattern  sold  from  the  same  bolt,  so  that,  having 
seen  one  of  the  children,  one  could  identify  all  of  the  rest 
of  the  members  of  a  family  by  their  uniform  colors.  Now, 
all  of  that  is  changed.  Where  means  permit,  each  child  in 
the  family  must  have  a  distinctive  dress  suited  to  its  age 
and  individuality.  The  carpet  bag  and  rubberized  satchel 
have  given  way  to  the  suit  case  and  traveling  bag.  Gone 
also  is  the  cotton  umbrella  with  its  whalebone  ribs.  In  the 
drug  line,  proprietary  articles  have  increased  from  7,500  in 
the  early  90's  to  over  30,000  in  1913.  Hardware,  furniture, 
and  many  other  lines  have  experienced  similar  tendencies. 

The  causes  for  such  changes  in  this  country  are  not  hard 
to  discern.  In  addition  to  the  change  in  habits  from  one 
generation  to  another,  there  is  the  steady  effect  of  the  in- 
flowing immigration,  also  the  emigration.  Each  addition 
or  subtraction  of  people   from  a  community  is  likely  to 


58  ECONOMICS  OF  RETAILING 

strengthen  or  weaken  some  tendency  to  form  certain  habits 
of  consumption.  But  more  effective  than  these  general 
movements  is  the  education  that  the  American  pubHc  is 
getting  through  its  schools,  theatres,  lectures,  moving-pic- 
ture shows,  and  so  on.  Through  these  everybody  finds  out 
what  everybody  else's  standard  of  living  is.  No  class  can 
keep  its  methods  of  satisfying  its  wants  long  to  itself.  The 
poor  learn  from  the  rich,  the  employee  from  the  employer, 
and  the  country  from  the  city.  Chicago  learns  what  New 
York  is  doing  —  what  its  people  have  to  wear  and  how  they 
live;  and  Kankakee  learns  from  Chicago.  Information  is 
diffused  quickly  and  widely.  Emulative  imitation  takes 
care  of  the  rest. 

The  shortening  of  hours  of  labor  and  the  consequent 
increase  in  leisure  time  that  nearly  all  classes  have  enjoyed 
has  helped  indirectly  to  bring  about  the  great  changes  in  de- 
mand noted  above.  During  the  newly  acquired  leisure  time, 
the  laborer  has  had  the  opportunity  to  learn  and  to  think 
about  things  concerning  which  he  could  have  had  no  pos- 
sible interest  while  his  time  was  entirely  taken  up  by  his 
work. 

The  rise  into  economic  independence  of  large  classes  of 
people  is  another  factor  helping  to  produce  the  changes. 
Nowhere  are  the  effects  on  demand  of  such  changes  in 
economic  conditions  more  obvious  than  among  those  classes 
of  people  who  have  an  income  of  $1,000  a  year  and  over. 
In  families  having  less  than  this  income,  the  wife  must  often 
work  as  well  as  the  husband,  but  when  the  husband's  salary 
or  income  passes  this  point,  one  of  the  first  things  that  occurs 
is  the  withdrawal  of  the  wife  from  some,  if  not  all,  produc- 
tive labor.  The  standard  for  the  wife  thereafter  becomes 
one  of  leisure,  and  the  demand  made  for  goods  reflects  how 
this  standard  moves.  Not  only  is  outside  work  by  the  wife 
given  up,  but  also  the  labors  of  the  home  are  lightened  pro- 


THE  CONSUMER 


59 


gressively.  Package  goods  and  ready-cooked  foods,  or 
foods  that  may  be  prepared  in  a  very  few  minutes  with  the 
least  possible  amount  of  labor,  are  especially  esteemed. 
Orders  for  goods  are  for  small  quantities  only,  and  left- 
overs are  disliked.  The  servant  problem  is  solved  by  throw- 
ing most  of  the  work  of  the  home  on  commercial  enterprise 
and  eliminating  maids  and  servants  entirely. 

Every  magazine,  newspaper,  and  recent  novel  is  a  lesson 
in  demand.  Advertising,  news,  stories,  and  illustrations 
convey  impressions  concerning  the  methods  by  which  peo- 
ple satisfy  their  material  desires  and  cause  the  wide  dif- 
fusion of  current  standards.  Who  can  estimate  the  influ- 
ence that  the  food,  dress,  arid  ways  of  living  of  heroes  and 
heroines  in  modern  novels  has  had  on  the  standards  of  the 
readers?  The  influence  of  the  theatre  on  women's  dress  is 
well  understood,  but  no  one  has  yet  given  Christy,  Hutt, 
Fisher,  Gibson,  Flagg,  Phillips  and  other  popular  artists  and 
illustrators  the  credit  they  deserve  for  interpreting  the  high 
tide  of  fashion  in  clothing  and  dress  accessories,  and  for 
helping  to  popularize  style  tendencies  through  their  work 
as  illustrators  of  fiction.  What  is  proper  and  desirable  is 
thus  built  up  in  consumers'  minds  quite  unconsciously. 
Mental  products  of  these  kinds  are  the  ones  consumers  fancy 
to  be  their  own  —  the  result  of  their  own  tastes  and  intui- 
tions. 

In  conclusion,  the  consumers  are  the  rulers  of  the  retail 
market.  What  consumers  want,  actually  or  potentially, 
constitute  the  things  that  the  retailer  must  supply.  If  he 
cannot,  he  must  make  way  for  the  one  who  can.  It  is  most 
difficult  to  characterize  these  consumers  in  general  terms. 
Among  the  multitude  of  consumers  there  are  marked  in- 
dividual differences.  No  general  classification  would  be 
adequate.  They  are  of  all  classes  and  conditions.  They 
are  made  up  of  the  rich  and  poor,  old  and  young,  ignorant 


6o  ECONOMICS  OF  RETAILING 

and  intelligent,  active  and  indolent,  careful  and  indifferent, 
honest  and  dishonest,  and  the  sick  and  the  well.  Most  of 
them  are  struggling  for  a  living,  all  have  their  difficulties 
to  contend  with,  and  few  can  ever  have  all  of  their  demands 
for  goods  entirely  satisfied.  Now  attending  to  one  want, 
now  another,  they  seek  the  maximum  of  satisfaction  pos- 
sible to  them  under  the  circumstances.  Subject  to  a  mul- 
titude of  whims,  unsystematic  in  their  buyings,  forgetful, 
ease-loving  —  such  in  general  is  the  character  of  the  cus- 
tomer of  the  retailer.  It  is  for  these  that  the  retail  store, 
in  fact  all  business,  exists.  The  merchant  and  his  em- 
ployees, who  have  learned  that  the  store  is  for  the  cus- 
tomer and  not  the  customer  for  the  store,  have  gone  far 
toward  solving  the  problem  of  how  a  retail  institution  should 
be  conducted. 

Bibliography 

Langworthy,  C.  F.  Food  Customs  and  Diet  in  American  Homes.  Cir- 
cular 110,  Office  of  Experiment  Stations,  U.  S.  Department  of  Agri- 
culture. 

Homes,  Geo.  K.  Consumers'  Fancies.  Year  Book  of  U.  S.  Department 
of  Agriculture,  1904. 

Fawcett,  W.     Consumer  Demand.    Printers'  Ink,  Nov.  7,  1912. 

Warren,  W.  P.  Getting  People  to  Pay  More.  Printers'  Ink,  Dec.  28, 
1911. 

Beardot,  E.    The  Quality  Appeal.    Printers'  Ink,  Feb.  22,  1912. 

Johnson,  R.  W.  Keeping  Up  with  the  Changing  Market.  Printers'  Ink, 
Sept.  12,  1912. 

Fawcett,  W.     Consumer  Demand.    Printers'  Ink,  Nov.  7,  1912. 
Ink,  Oct.  17,  1912. 

Spencer,  C.  D.  Putting  Yourself  in  the  Consumer's  Place.  Printers' 
Ink,  June  15,  1911. 

Harris,  W.  J.  How  the  Shifting  of  Population  Is  Affecting  Possible 
Markets.    Printers'  Ink,  Aug.  28,  1913. 

Rogers,  E.  S.  What  Sort  of  a  Person  Is  the  Consumer?  Printers'  Ink, 
Sept.  26,  1912. 

Woman  as  a  Buyer.    Printers'  Ink,  Oct.  20,  1910. 

Parlin,  C.  C.  "The  Merchandising  of  Textiles."  Curtis  Publishing 
Company. 


THE  CONSUMER  6l 

Ward,  L.  F.    The  Psychic  Factors  of  Civilization,  Ch.  XXVI,  "  Female 

Intuition." 
Hall,    G.    S.    "Adolescence,"    Vol.    II,    pages    561-569.     (Splendid    on 

differences  between  men  and  women.) 
Frederick,  Mrs.  C.     "Woman  —  the  Greatest  Buyer."    Address  before 

Associated   Advertising   Clubs   of   the   World,   Toronto,   June  23, 

1914.    Associated  Advertising,  Aug.,  1914. 


CHAPTER  IV 

PRESENT  STATUS  OF  RETAILING 

To  get  an  accurate  idea  of  the  proportions  of  any  busi- 
ness, one  naturally  turns  to  the  census  statistics  of  a  country. 
But  in  the  study  of  the  distribution  of  goods,  and  of  retail- 
ing in  particular,  one  meets  with  a  strange  lack  of  any  in- 
formation in  such  documents.  The  only  helpful  material 
contained  in  the  United  States  Census  reports  having  any 
reference  to  trade,  are  the  figures  showing  the  occupations 
of  the  working  population  of  the  country.  Such  figures 
were  first  published  for  the  census  of  1850,  and  have  been 
continued  in  connection  with  each  decennial  census  down  to 
the  present,  but  the  working  of  the  Census  Bureau  machinery 
is  so  slow  that  years  intervene  between  the  census  itself  and 
the  publication  of  its  results.  For  example,  the  report  on 
occupations  from  the  census  of  1910  was  not  published  until 
the  autumn  of  1914. 

The  following  figures  are  presented  from  the  census  of 
1910.  The  reader  should  observe  caution  in  reading  the 
table.  For  example,  the  figures  showing  the  number  of 
merchants  and  dealers  do  not  represent  the  number  of  estab- 
lishments. All  owners  and  partners  and  managers  of  stores 
were  counted.  In  cases  where  a  store  was  owned  by  several 
partners,  each  partner  was  counted.  In  cases  where  one 
person  owned  several  stores  directly  managed  by  himself, 
the  owner  or  manager  was  counted,  and  not  the  stores. 
The  total  does  not  represent  the  number  of  retail  stores  in 
this  country,  and  there  is  no  way  of  telling  whether  the  num- 

62 


PRESENT  STATUS  OF  RETAILING  63 

ber  of  establishments  is  greater  or  smaller  than  the  number 
of  merchants  and  dealers. 

Number  of  Persons  Engaged  in  the  Retail  Business  ^  ^^^^ 

Retail  merchants  and  dealers,  total 1,195,029 

Agricultural  implements  8,518 

Automobiles    4,597 

Books    3,118 

Boots  and  shoes 19,346 

Butchers  and  meat  dealers 124,048 

Candy  and  confectionery 29,538 

Cigars  artd  tobacco 17,728 

Clothing  and  men's  furnishings 35,273 

Coal  and  wood 24,466 

Department  stores 8,970 

Drugs  and  medicines 67,575 

Dry-goods,  fancy  goods,  notions 65,283 

Five  and  ten  cent  and  variety 4,331 

Furniture    22,209 

General  stores 88,059 

Groceries    195,432 

Hardware,  stoves,  cutlery 39,663 

Harness  and  saddlery 7,541 

Hucksters  and  peddlers 80,415 

Jewelry    29,962 

Liquors  and  wines 17,736 

Lumber  26,485 

Music  and  musical  instruments 5,222 

Newsdealers    7,075 

Oil,  paint,  wall  paper 6,818 

Opticians    6,284 

Produce  and  provisions    29,639 

Rubber  goods 493 

Cashiers  in  stores 28,500 

Clerks   in   stores 387,183 

Bundle  and  cash  boys  and  girls 10,866 

Decorators,  drapers,  window  dressers 5,341 

Delivery  men   205,589 

Demonstrators    4,380 

Elevator  tenders   3,075 

1  Selected  Groups  from  Census  of  1910.  For  a  complete  list  of  figures  for  all 
classes  of  retail  businesses  as  listed  by  the  Census,  see  U.  S.  Census,  1910,  Vol. 
IV,  pp.  420-423. 


64  ECONOMiCS  OF  RETAILING 

Store  laborers 68,093 

Meat  cutters   15,405 

Salesmen  and  saleswomen 875,180 

Scrubbers  and  sweepers 276 

Another  defect  in  the  United  States  Census  figures  for 
the  different  decades  is  the  lack  of  uniformity  in  classifica- 
tion of  the  occupations  having  to  do  with  trade.  This  makes 
all  comparisons  of  one  decade  with  another  decade  difficult, 
and  doubtful  in  result.  For  example,  wholesale  merchants 
were  not  separated  from  retail  merchants  until  1890.  Up 
to  1890,  retail  salespeople  were  counted  as  clerks  and  copy- 
ists. No  traveling  salesmen  were  enumerated  as  a  class 
until  1870.  No  attempt  was  made  to  classify  a  large  class 
of  dealers  at  all.  In  1900  over  364,000  merchants  out  of  the 
total  of  790,000  are  simply  lumped  together  as  "  not 
specified." 

Nearly  every  state  in  the  union  takes  a  periodical  cen- 
sus, but  none  of  these,  with  the  single  exception  of  Massa- 
chusetts, has  taken  any  particular  account  of  the  distributing 
classes.  In  1904  a  law  was  passed  in  Massachusetts  requir- 
ing that  a  census  be  taken  of  trade  at  the  same  time  as  the 
regular  ten-year  census  taken  in  years  ending  in  5  is  taken. 
In  consequence  a  study  was  made  of  the  distributing  busi- 
ness in  Massachusetts  in  1905,  the  first  of  its  kind  in  this 
country.  The  volume  containing  the  report  of  this  census 
was  issued  in  1908. 

The  Massachusetts  census  of  trade  is  so  significant  that 
it  merits  something  more  than  mere  mention  in  this  connec- 
tion. Its  results  cover  the  following  subjects:  when  the 
stores  were  established ;  number  of  establishments,  classified 
into  retail,  wholesale,  jobbing,  commission,  exporting,  im- 
porting, and  exporting  and  importing;  the  number  of  part- 
ners and  stockholders;  the  capital  invested;  value  of  goods 
sold;  the  number  of  wage  earners;  the  wages  paid  per  week; 


PRESENT  STATUS  OF  RETAILING  65 

the  number  of  salary  earners ;  and  the  salary  paid  per 
week. 

As  a  study  of  wage  and  salary  conditions,  this  census  is 
excellent,  but  retail  stores  are  not  carefully  enough  dis- 
tinguished from  the  other  kinds  of  distributing  institutions 
to  permit  one  to  form  any  conclusion  as  to  the  proportion 
of  distributors,  as  for  example,  grocers,  dry-goods  men,  or 
hardware  store  keepers,  to  population.  Nothing  definite  can 
be  learned  as  to  the  service  rendered  to  the  people  of  the 
state  in  kinds  of  goods  handled  and  expenses  of  handling. 
A  good  start  was  made  in  getting  this  census,  but  much  more 
still  remains  to  be  done.  Some  of  the  more  suggestive  re- 
sults shown  in  the  Massachusetts  report  are  as  follows : 

Over  half  of  the  extant  concerns  had  come  into  existence 
within  the  ten-year  period  preceding  the  census.  Ten  firms 
out  of  a  total  of  29,045  had  been  founded  before  1770. 
There  were  12,441  stores  which  sold  food  products.  The 
average  investment  in  each  of  these  was  $2,489,  and  the 
average  sales  $14,569.  There  was  one  food  store  for  every 
241  people  in  the  state.^ 

Another  important  contribution  to  the  subject  of  retail- 
ing was  made  by  the  state  of  Massachusetts  in  its  Report  of 
the  Bureau  of  Statistics  of  Labor  for  1899,  published  in 
March,  1900.  Seventy  pages  in  this  report  w^ere  devoted 
to  a  study  of  "  Changes  in  Conducting  Retail  Trade  in  Bos- 
ton since  1874."  The  investigation  upon  which  this  report 
was  based  w^as  undertaken  to  determine  the  effect  of  the 
increase  in  number  of  department  stores  on  the  retail  trade. 
Several  states  were  considering  legislating  against  the  depart- 
ment stores  at  the  time,  and,  as  it  happened,  there  was  a  bill 
introduced  before  the  Massachusetts  legislature  during  the 
session  of  1899-1900.     Nothing  came  of  this  bill,  how^ever, 

2  A  few  of  the  most  significant  figures  in  the  Massachusetts  Trade  Census  wjll 
b?  found  in   Appendix  II  of  this  volume, 


66  ECONOMICS  OF  RETAILING 

and  the  Bureau  reported  as  the  results  of  its  investigation, 
that  there  was  no  reason  to  beHeve  that  department  stores 
were  crowding  the  small  stores  out  of  existence.^ 

Another  source  of  statistical  information  concerning  the 
m.Tmber  of  retailers  of  this  country  and  their  financial  abil- 
ity, is  found  in  the  reference  books  of  R.  G.  Dun  &  Com- 
pany and  in  the  Bradstreet  lists  of  various  classes  of  dealers. 
These  lists  all  probably  contain  some  inaccuracies.  Neither 
of  the  two  concerns  are  able  to  get  all  of  the  names  of  all 
concerns  in  business.  But  the  lists  are  likely  to  include  the 
better  and  more  stable  classes  of  retailers  —  those  who  have 
been  in  business  for  some  time.* 

One  of  the  first,  if  not  the  first,  of  the  studies  of  retail 
distribution  was  made  by  a  committee  of  the  American  Eco- 
nomic Association  and  reported  at  the  regular  annual  meet- 
ing in  1887.  This  report  contained  a  number  of  significant 
suggestions,  and  it  seems  too  bad  that  this  great  association 
of  American  scholars  of  economics  did  not  see  fit  to  continue 
their  work  so  well  begun  in  this  line.  The  text  of  Secre- 
tary R.  T.  Ely's  abstract  of  the  report  is  presented  herewith : 

"  Report  of  Committee  on  Trade  ^  on  'Condition  and 
Organization  of  Retail  Trade '  to  American  Economic  As- 
sociation," May  24,  1887. 

"  This  preliminary  report,  on  the  condition  and  organi- 
zation of  retail  trade,  was  a  compilation  of  a  large  number 
of  returns  received  in  answer  to  circulars  of  inquiry  sent  to 
retailers,  chiefly  in  Kansas,  Iowa,  Minnesota,  covering  eleven 
hundred  and  eighty-five  retailers.     The  report  shows : 

3  A  comparison  of  the  number  of  departments  selling  specific  lines  of  goods  in 
department  stores,  with  the  number  of  specialty  stores  in  Boston,  and  a  comparison 
of  the  total  population  of  Boston  with  the  number  of  retail  stores  in  each  of 
several  specified  lines,  as  enumerated  by  the  Bureau  of  Statistics  of  Labor  in  1899, 
will  be  found  in   Appendix  III  hereof. 

4  A  list  of  the  number  of  wholesalers  and  retailers  in  various  lines  of  mer- 
chandise, as  compiled  from  R.  G.  Dun  &  Company's  records,  is  given  in  Ap- 
pendix  IV. 

5  Professor  James  H.  Canfield,  Chairman;  Professor  Jesse  Macy,  Dr.  Albert 
Shaw,  and  Professor  W.  W.  Tolwell,  Committee. 


PRESENT  STATUS  OF  RETAILING  ey 

"  That  retailers  are  increasing  (proportionately)  four 
times  as  fast  as  the  population. 

"  That  the  average  retailer  knows  very  little  of  the  gen- 
eral condition  of  his  own  branch  of  business. 

"  That  there  is  very  little,  if  any,  efficient  organization 
among  retailers. 

"  That  intelligent  retailers  are  coming  to  understand  and 
deplore  this  condition  of  affairs. 

"  That  competition  tends  constantly  and  strongly  to  be- 
come mere  unintelligent  commercial  cut-throatism. 

'*  That  in  food  supplies,  competition  tends  constantly  and 
strongly  to  adulteration  and  general  inferiority;  while  in 
dry-goods  and  clothing  the  result  is  better  quality  and  better 
workmanship.  Boots  and  shoes  and  other  branches  are 
about  equally  divided  in  opinion  as  to  the  result  of  com- 
petition. 

"  That  compared  with  the  capital  invested,  the  volume 
of  business  is  very  large  and  the  wages  of  superintendence 
very  small. 

"  That  in  the  localities  reporting,  during  five  years  15 
per  cent  of  the  retailers  have  failed,  about  17  per  cent  have 
changed  localities  by  removal,  and  12  per  cent  have  with- 
drawn from  business,  leaving  but  about  56  per  cent  that  can 
be  called  stable. 

"  That  the  more  experienced  dealers  are  settling  down  to 
a  cash  basis. 

"  That  the  undue  extension  of  credits  and  the  consequent 
abuse  of  the  credit  system  by  both  wholesalers  in  relation 
to  retailers,  and  retailers  in  relation  to  their  customers,  is 
a  large  factor  in  the  present  disordered  condition  of  the 
retail  world. 

"  There  seems  to  be  a  strong  tendency  to  avoid  credits  in 
buying  and  selling.  Accounts  settled  at  the  close  of  each 
month  are  generally  called  cash  accounts.     A  suggestion  is 


68  ECONOMICS  OF  RETAILING 

made  that  all  laws  for  the  collection  of  debts  be  abolished. 
This  would  be  better  worded  as  *  laws  for  the  enforcement 
of  credits/  In  proportion  to  the  amount  of  business  done 
and  credit  extended,  there  are  fewer  collection  suits  than 
formerly.  The  great  mercantile  agencies  make  a  specialty 
of  protecting  credits.  It  is  thought  if  the  wholesale  credit 
system  were  considered  as  resting  entirely  on  honor,  the 
results  would  be  in  every  way  beneficial  to  both  traders  and 
the  purchasing  world.  The  committee  has  received  several 
suggestions  looking  to  this  general  result.  The  thought  is 
worthy  of  careful  consideration.  The  assertion  is  made  that 
the  largest  and  most  successful  business  firms  in  this  country 
already  proceed  practically  on  this  basis. 

"  After  the  full  report  of  this  committee  was  read, 
President  Walker  said  that  the  field  was  so  vast  that  no 
generalizations  from  such  limited  data  as  this  committee 
had  obtained  were  reliable. 

"  Dr.  Bemis  spoke  briefly  on  retail  trade  and  co-opera- 
tion, and  Rev.  J.  G.  Brooks  and  Mr.  Geo.  A.  Denison  and 
Professor  Ely  continued  the  discussion." 

Subsequent  accounts  and  statistics  have  shown  certain 
of  the  deductions  in  this  report  badly  founded,  as  for  ex- 
ample, that  retailers  are  increasing  four  times  as  fast  as  the 
population,  and  that  the  rnore  experienced  dealers  are  set- 
tling down  to  a  cash  basis.  On  the  whole,  however,  the  ten- 
dencies found  by  this  committee  seem  to  be  amply  supported 
at  many  places  by  facts  drawn  from  other  sources.  It  is  to 
be  hoped  that  the  American  Economic  Association  or  some 
other  organization  may  soon  take  up  again  such  studies  as 
these,  and  work  out  collectively  what  is  so  difficult  and  so 
time-consuming  for  single  individuals  to  accomplish. 


CHAPTER  V 

THE  EXPENSES  OF  RETAILING 

One  of  the  best  ways  to  get  a  clear  understanding  of 
the  retail  business  is  to  analyze  its  expenses.  Until  such  an 
analysis  has  been  made,  comparisons  of  the  work  of  one 
store  with  that  of  another  are  mostly  meaningless.  But 
the  development  of  better  retailing  beyond  a  certain  point 
can  come  only  through  intimate,  detailed  comparisons  of  the 
elements  determined  from  such  an  analysis.  The  factors 
favorable  to  efficiency  may  thus  be  isolated  in  the  more  suc- 
cessful stores  and  applied  in  the  administration  of  the  less 
successful.  The  leaks,  wastes,  and  abnormal  elements  may 
likewise  be  determined  and  eliminated. 

In  text-books  of  general  economics  it  is  commonly  stated 
that  there  are  three  factors  of  production,  viz.,  land,  labor, 
and  capital.  A  retail  business,  like  all  other  economic  en- 
terprises, possesses  these  three  factors.  The  land  factor 
comprises  the  location  utilized  by  the  store,  and  the  labor 
includes  all  of  the  services  given  to  the  business  by  all  the 
people  employed  in  it,  from  manager  down  to  the  elevator 
boy  or  cash  girl.  The  capital  element  includes  all  that  for 
which  money  has  been  laid  out  —  such  as  merchandise,  fix- 
tures, and  equipment  of  all  kinds. 

This  classification  has  its  value  for  purposes  of  general 
economic  discussion,  but  in  a  treatise  on  a  special  field  of 
economics,  such  as  the  distribution  of  goods  at  retail,  it  is  not 
detailed  enough  to  be  as  serviceable  as  it  should  be.  For  a 
better  enumeration  of  the  factors  of  a  retail  business  we 

69 


70  ECONOMICS  OF  RETAILING 

must  go  to  the  accountants  who  have  made  a  special  study  of 
cost  finding  in  the  retail  business. 

The  most  notable  contribution  to  retail  cost  accounting 
is  the  "  Harvard  System  of  Accounts  for  Shoe  Retailers." 
In  1911  the  Bureau  of  Research  in  the  Graduate  School  of 
Business  Administration  of  Harvard  University  began  in- 
vestigating the  distribution  of  shoes  with  a  view  to  collecting 
facts  suitable  for  educational  purposes.  A  certain  amount 
of  field  work  in  gathering  data  during  the  summer  con- 
vinced the  managers  that  such  investigations  would  be  use- 
less, since  the  data  collected  from  different  stores  did  not 
represent  the  same  things.  In  other  words,  there  was  no 
uniform  classification  of  elements  of  expense  in  the  business. 
^Accurate  comparisons  could  not  be  made.  As  a  preliminary 
step  to  further  work  it  was  determined  to  prepare  a  uniform 
accounting  system.  "  A  joint  committee  composed  of  ac- 
countants of  national  reputation  and  of  shoe  men  most  rep- 
resentative in  Boston  and  vicinity  was  secured.  As  a  result 
of  their  labors  and  counsel,  and  that  of  the  Bureau,  the  Har- 
vard System  of  Accounts  for  Shoe  Retailers  was  given  to  the 
trade  early  in  1912." 

A  large  number  of  shoe  retailers  the  country  over  have 
adopted  this  system,  and  the  number  is  rapidly  increasing. 
A  bulletin  giving  a  general  statement  of  the  results  found 
during  the  first  year  of  its  operation  was  published  by  the 
Bureau  in  May,  1913.  Reference  to  this  publication  will 
be  made  in  several  places  in  this  work.  The  expense  classi- 
fication in  the  Harvard  Accounting  System,  while  specific- 
ally prepared  for  the  shoe  business,  seems  to  be  generally 
adaptable  with  minor  changes  to  any  retail  store,  especially 
of  the  one-line  or  specialty  type.  Department  store  accounts 
must  be  carried  somewhat  differently.  Other  elements  need 
to  be  considered  when  a  store  handles  many  lines  of  goods. 

A  great  deal  has  been  written  on  retail  accounting  dur- 


I 


THE  EXPENSES  OF  RETAILING 


71 


ing  the  last  three  or  four  years.  The  Burroughs  Adding 
Machine  Company,  in  connection  with  their  advertising,  con- 
ducted an  investigation  on  how  retailers  figure  their  profits, 
and  found  a  considerable  variation  in  methods.  A  large 
number  of  returns  obtained  indicated  that  many  retailers 
were  in  error.  The  account  of  this  investigation  accom- 
panied by  suggestions  for  better  bookkeeping  methods  was 
published  widely  in  the  trade  papers  of  the  country. 

Several  of  the  trade  papers  have  themselves  conducted 
service  bureaus  where  proper  accounting  methods  have  been 
promulgated. 

The  National  Association  of  Credit  Men  has  interested 
itself  in  proper  retail  accounting  and  has  published  a  set  of 
rules  showing  what  items  of  expense  should  be  considered 
and  how.^  For  four  or  more  years  the  National  Implement 
and  Vehicle  Associiation  has  conducted  an  extensive  cam- 
paign for  accurate  cost  finding  in  retail  businesses  handling 
agricultural  implements  and  vehicles.  Frank  E.  Goodwin, 
editor  of  a  St.  Louis  trade  paper  known  as  Farm  Machinery, 
claims  to  have  been  one  of  the  first  to  begin  a  systematic 
study  of  the  costs  of  doing  business  in  a  retail  store.^  The 
fact  that  his  studies  were  not  begun  until  1908  shows  how 
recent  the  whole  movement  for  more  careful  analysis  of 
distributive  business  is. 

A  remarkable  work  for  promoting  better  methods  of 
retail  accounting  has  been  performed  by  Thomas  A.  Fern- 
ley,  of  Philadelphia.  As  secretary  of  various  national 
trade  organizations,  Mr.  Fernley  compiled  a  large  number 
of  facts  regarding  the  retail  trade  and  published  monographs 
on  the  subject,^  thiat  have  been  given  a  very  wide  distri- 
bution.    So  far  as  the  writer  has  learned,  these  were  the 

1  See  Appendix   V  of  this  voltime. 

2  American  Paint  and  Oil  Dealer,  September,  1913,  p.  33. 

3  A  collection  of  monographs,  including  "  Cost  of  Doing  Business  **  and  the 
"  Right  Way  to  Figure  Profits,"  was  published  in  1912  under  the  title  "  Price 
Maintenance,"  by  Thomas  A.   Fernley,  Philadelphia. 


72  ECONOMICS  OF  RETAILING 

first  publications  upon  the  subject  of  scientific  retail  cost 
accounting.  In  conversation  with  Mr.  Fernley  the  writer 
was  told  that  the  studies  preceding  these  publications  began 
in  the  later  90's  and  were  carried  on  by  both  Thomas  A. 
Fernley  and  his  father,  T.  James  Fernley,  secretary-treas- 
urer of  the  National  Hardware  Association  of  the  United 
States. 

William  H.  Ingersoll,  marketing  manager  for  Robert  H. 
Ingersoll  &  Brother,  has  worked  out  a  system  of  account- 
ing for  retail  jewelers  that  has  been  found  acceptable,  and 
has  been  widely  adopted. 

Hart,  Schaffner  &  Marx,  the  Chicago  clothing  manufac- 
turers, have  devised  a  system  for  retail  clothing  stores  which 
is  described  in  a  pamphlet  entitled,  '*  What  Do  You  Know 
About  Your  Business  ?  " 

In  1915,  the  General  Extension  Division  of  the  Univer- 
sity of  Minnesota,  through  a  committee  composed  of  retail 
merchants,  of  the  editor  of  one  of  the  trade  papers,  and  of 
a  representative  of  the  General  Extension  Division,  ap- 
pointed at  the  first  short  course  for  merchants  held  during 
February,  1914,  issued  an  accounting  system  for  general 
merchants. 

Several  private  concerns  as  well  as  individual  account- 
ants specializing  in  retail  systems  have  broken  into  the  field 
of  retail  cost  accounts,  with  the  result  that,  while  the  move- 
ment is  comparatively  recent,  it  is  already  developing 
rapidly. 

In  running  a  store  it  must  be  borne  in  mind  that  a  re- 
tailer must  make  two  distinct  kinds  of  direct  outlays ;  first, 
his^cpsts  .for  goo_ds,.  and,  second,  his_.co.sts  for  conducting 
the  business.  If  one  may  compare  a  retailer's  business  with 
a  manufacturing  concern,  the  outlay  for  merchandise  is 
much  the  same  as  the  manufacturer's  outlays  for  raw  ma- 


THE  EXPENSES  OF  RETAILING 


73 


terial,  and  the  costs  of  conducting  the  retail  business  are 
similar  to  costs  of  manufacturing  —  labor,  rent,  general 
expenses,  etc.  What  the  retailer  pays  for  the  goods  is  not 
their  total  cost  when  handed  over  the  counter  to  the  con- 
sumer, any  more  than  the  cost  of  raw  material  is  the  total 
cost  of  the  finished  product  that  the  manufacturer  offers 
for  sale.  Nothing  but  looseness  of  speech  and  of  thought 
can  account  for  the  common  use  of  the  word  profit  as  if 
it  were  the  full  difference  between  what  the  retailer  pays 
for  the  goods  when  he  buys  them  and  what  he  receives  for 
them  when  he  sells  them.  The  true  costs  of  the  goods  in- 
clude the  purchase  price  plus  all  expenses  of  transportation, 
drayage,  and  so  forth,  necessary  to  bring  the  goods  to  the 
store.  Then  in  addition  to  this  first  cost  of  the  goods  laid 
down,  there  are  the  costs  of  selling  them.  It  is  the  latter, 
the  costs  of  selling  the  goods  in  a  retail  store,  that  we  are 
interested  in  outlining  in  this  chapter.  It  should  be  noted 
in  passing  that  all  freight,  express,  parcels  post,  and  cartage 
on  incoming  goods  are  to  be  added  to  and  considered  part 
of  the  purchase  price  of  the  goods.  Only  after  the  goods 
actually  reach  the  store  can  the  selling  expense  in  them  be 
said  to  commence. 

Classification  of   Retail   Store  Expenses 
I.     Buying  Expenses: 

1.  Salaries  and  wages  of  buyers  in  proportion  to 

time  spent  in  buying.  (All  time  consumed 
in  examining  stock,  making  stock  records, 
ordering  goods,  inspecting  salesmen's  sam- 
ples, and  all  time  used  in  buying  trips 
should  be  included.) 

2.  Traveling  expenses. 

3.  Miscellaneous  expenses. 


74 


ECONOMICS  OF  RETAILING 

II.     Selling  Expenses: 

1.  Salaries  and  wages  of  sales  force.     (AH  time 

given  to   selling  by  buyers   and   manager 
should  be  included  under  this  classification. ) 

2.  Premiums,  commissions,  bonuses,  spiffs,  PM's, 

and  prizes  paid  for  sales  service  in  addition 
to  salaries. 

3.  Advertising: 

(1)  Newspaper  and  periodical 

(3)  Circulars  and  letters 

(3)  Bill  boards,  electric  signs,  etc. 

(4)  Local  programs 

(5)  Window  displays 

(6)  Gifts,  premiums,  and  trading  stamps 

4.  Miscellaneous: 

(1)  Wrapping  paper,  twine,  etc. 

(2)  Free  alterations  and  repairs 

(3)  Expenses  and  losses  on  returns 

III.  Delivery  Expenses: 

1.  Wages  of  delivery  force  for  time  spent  in  de- 

livering goods  to  customers. 

2.  Stable  and  garage  expenses. 

3.  Express,  mail,  and  freight  shipments. 

4.  Miscellaneous. 

IV.  Management  Expenses: 

1.  The  portion  of  the  salaries  of  the  managers 
represented  by  the  time  consumed  in  hiring 
and  training  employees,  supervising  the 
work  of  the  store,  and  other  managerial 
work. 

V.     Office  Expenses: 

1.  Salaries  of  bookkeepers  and  stenographers 
for  time  spent  in  office  work. 


THE  EXPENSES  OF  RETAILING  75 


VI. 


2. 

Salaries  of  cashiers,  inspectors,  and  office  mes- 

sengers. 

3. 

Office  supplies : 

(1)   Stationery,  printing  and  postage 

(2)  Account  books 

(3)   Miscellaneous 

XE 

D  Charges: 

1. 

Rent: 

(1)   Store  premises 

(2)   Storage  or  warehouse 

2. 

Heat,  light  and  power. 

3. 

Insurance : 

(1)   Fire 

(2)   Burglary 

(3)  Fidelity 

(4)   Plate  glass 

(5)  Employer's  liability 

(6)  Accident  elevator 

(7)   Sprinkler  system  water  damage 

(8)   Warehouse 

(9)   Boiler 

(10)   Merchandise  en  route 

(11)  Life  insurance  payable  to  firm 

4.  Taxes  on  stock  and  store  equipment. 

VII.     Upkeep  and  Depreciation  Expenses: 

1.  Repairs  and  renewals  of  equipment. 

2.  Depreciation  of  equipment. 

3.  Depreciation  of  merchandise  stock. 

VIII.     Miscellaneous  Expenses: 

1.  Telephone  and  telegraph  expenses. 

2.  Water  and  ice. 

3.  Care  of  store,  janitor's  services,  cleaning,  etc. 


76  ECONOMICS  OF  RETAILING 

4.  Expenses  of  collecting  slow  accounts. 

5.  Losses  from  bad  debts. 

IX.     Interest  on  Net  Worth  of  Business  at  Cur- 
rent Rate. 

After  classifying  the  expenses  of  a  store  according  to 
the  foregoing  or  any  other  method  it  is  necessary  to  reduce 
the  results  to  percentages  before  they  may  be  compared  with 
similar  results  recorded  from  other  stores,  or  even  with 
results  from  the  same  store  for  years  past.  But  in  order 
that  the  percentages  may  be  compared  they  must  be  com- 
puted upon  the  same  bases.  At  this  point  there  is  much 
disagreement  among  retail  store  accountants.  Some  claim 
that  the  costs  of  the  goods  should  be  used  as  the  base,  while 
others  insist  that  the  sales  cost  should  be  considered  as  the 
base.  Trade  papers  have  teemed  with  articles  on  both  sides. 
Frank  E.  Goodwin,  already  referred  to,  has  been  a  leader 
in  the  discussion  for  using  the  costs  of  the  goods  as  the  base,* 
while  the  National  Association  of  Credit  Men,  Burroughs 
Adding  Machine  Company,  Butler  Brothers,  the  National 
Implement  and  Vehicle  Associations,  the  Harvard  System  of 
Accounts,  as  well  as  many  of  the  trade  papers  have  urged 
sales  cost  as  the  proper  base  for  figuring  retail  expenses  and 
profits.  It  is  obvious  that  either  may  be  used  with  accuracy 
if  adhered  to  consistently.  The  trouble  that  has  arisen  has 
been  due  to  the  fact  that  dealers  have  very  generally  com- 
puted some  of  their  percentages  on  their  sales  and  others  on 
costs.  This  confusion  constitutes  the  chief  error  noted  in 
actual  practice. 

There  seems  to  be  some  advantage,  however,  in  comput- 
ing expense  and  profit  percentages  on  sales  rather  than  on 
costs,  and  for  this  reason  all  percentages  in  this  book  are 

4  "  A   Cost  Accounting   Fallacy   Exposed,"   first  published   as  an  article   in  the 
American  Paint  and  Oil  Dealer,  June,  1^12. 


THE  EXPENSES  OF  RETAILING 


77 


based  on  sales.  In  a  little  pamphlet  published  by  the  Bur- 
roughs Adding  Machine  Company,  written  by  Thomas  A. 
Fernley,  **  twelve  reasons  why  the  percentage  of  profit  should 
be_figured  on  the  selling  price  and  not  on  the  cost ''  are 
given  : 

jll    First.     Because  the  remuneration  of  salesmen  is  figured 
on  a  certain  percentage  of  the  selling  price. 

Second.  Because  the  percentage  of  expense  of  conduct- 
ing business  is  based  on  the  selling  price.  If  you  talk  per 
cent  of  profit  on  cost  and  per  cent  of  expense  on  the  selling 
price,  where  are  you? 

%^  Third.  Because  the  mercantile  and  other  taxes  are  in- 
variably based  on  a  percentage  of  the  gross  sales. 

Fourth.  Because  the  sales  totals  are  always  given  in 
books  of  record,  cost  totals  are  seldom,  if  ever,  shown. 

Fifth.  Because  a  profit  must  be  provided  for  two  items 
of  capital  —  one  the  capital  invested  in  merchandise  —  the 
other  the  capital  necessary  for  operating  expenses  and  other 
expenditures  not  properly  chargeable  to  merchandise  ac- 
count. This  is  only  possible  by  figuring  profit  on  the 
selling  price. 

Sixth.  Because  it  indicates  correctly  the  amount  of  gross 
or  net  profit  when  amount  of  sales  is  stated.  The  percentage 
of  profits  on  sales  is  indicative  of  character  of  result  of 
year's  business  —  percentage  of  profit  on  cost  is  not. 

Seventh.  Because  allowances  in  percentage  to  customers 
are  always  from  selling  price. 

Eighth.  Because  no  profit  is  made  until  sale  is  actually 
effected. 

Ninth.  Because  nine  stores  in  ten  which  do  not  figure  on 
the  selling  price  get  mixed  somewhere  in  their  figures,  and 
do  not  know  whether  they  are  going  forward  or  backward. 

Tenth.     Because  the  big  stores  figure  on  the  selling  price. 

Eleventh.     Because  it  puts  the  retailer  where  a  customer 


78  ECONOMICS  OF  RETAILING 

will  not  be  so  likely  to  call  him  a  robber  if  he  learns  tb 
percentage  of  profit.  Twenty  per  cent  of  the  selling  prio 
is  25  per  cent  on  the  cost,  but  the  20  per  cent  does  n 
seem  as  large  an  amount. 

Twelfth.  Because  if  you  figure  on  the  selling  price  yo' 
can  go  to  the  cash  drawer,  and  say  **  10  per  cent  of  tha 
money  is  my  profit  "  instead  of  having  to  say  that  "  10  pe; 
cent  of  the  cost  of  the  goods  which  I  sold  for  that  mone; 
is  my  profit." 

The-total  expenses  of  dQingiaj;etailbusiness  vary  greatly 
The  causes  for  these  variations  may  be  inferred  to  be  due  t 
the  kind  of  business,  the  location,  the  volume  of  busines 
done,  the  class  of  business  whether  high  or  low  grade,  an 
the  efficiency  with  which  it  is  conducted.     Expenses  seem 
to  vary  according  to  the  size  of  the  town  — the  larger  the 
town  the  higher  the  expense.     There  seems  to  be  a  little 
variation  between  the  different  parts  of  the  country.     Pacific 
Coast  and  Mountain   State  stores  have  expenses   running 
from  1  to  3  per  cent  higher  than  the  Middle  West,  while 
costs  seem  to  be  somewhat  less  in  the  South  than  in  the 
North  for  similar  classes  of  business.     The  averages  re- 
ported by  the  trade  papers  for  the  various  parts  of  the 
country  are  remarkably  similar,  however,  for  the  same  kinds 
of  businesses. 

A  recent  article  coiltains  the  following  statement: 

"  Location  counts.  One  per  cent  may  be  added  for  the 
Pacific  Coast  and  Mountain  States  (freight,  an  important 
but  variable  item,  is  not  considered)  and  one  per  cent  may 
be  deducted  for  the  Atlantic  Coast.  Rural  community  re- 
tailers may  safely  deduct  three  per  cent  from  the  averages, 
and  concerns  in  cities  of  over  400,000  add  two  per  cent."  ^ 

In  the  investigations  of  the  costs  of  doing  business  in  dry- 
goods  and  ready-to-wear  stores,  made  by  C.  C.  Parlin  for 

B  System,  December,   1913,   p.   569. 


THE  EXPENSES  OF  RETAILING 


79 


the  Curtis  Publishing  Company,  the  following  results  were 
obtained : 

Costs  of  Doing  Retail  Business  ^ 
Dry-Goods  and  Women's  Ready-to-Wear 

(Including  Corporation  Salaries,  Buying  Expenses,  and  Freight) 


Cities 

In  the  East 

In  the  Middle. 
West  and  South 

In  the  Pacific 

and  Mountain 

States  * 

600,000  up  

200,000  to  600,000.  . 
30,000  to  200,000..  . 

2,500  to  10,000 

Rural  stores  

Range 

24-31% 

22-27 

20-25 

17-23 

10-20 

Ave. 
26V2% 
24 
22 
20 
17 

Range 

23-28% 
20-26 
18-24 
11-20 

Ave. 

25% 

23 

21 

18 

Range 

28-34% 
25-32 
20-27 
15-25 

Ave. 

31% 
281/2 
261/2 
23 

*  Freight  to  Pacific  Coast  amounts  to  about  3  per  cent  and  to  the  Mountain 
States  4  per  cent  of  tfte  sales.  Reductions  to  this  arrtount  should  be  made  from 
the    last   column. 

The  Harvard  investigation  on  the  retailing  of  shoes  for 
its  first  year  ending  in  the  spring  of  1913  and  embracing 
observations  of  more  than  130  shoe  stores,  showed  the 
following  cost  of  selling: 

Cost  of  Selling  in  Retail  Shoe  Stores  "^ 


Principal  Items 
of  Expense 

Range 

(Total  Expense 

18-35%) 

Modal  Group 

(Total  Expense 

Low  Grade  23% 

High  Grade  27%) 

Most  Efficient 
Group 

(Total  Expense 
Low  Grade  20% 
High  Grade  25%) 

Buying    

Sales  force 

Advertising    .... 

Deliveries 

Rent 

Interest  

0.8-  1.8% 
5.0-10.3 
0.0-  8.8 
0.0-  1.4 
1.8-14.6 
1.0-  7.9 

1.1% 

8.0 

2.0 

0.6 

5.0 

2.5 

1.0% 

7.0 

1.5 

0.4 

3.0 

2.0 

It  is  to  be  noted,  however,  that  a  large  number  of  the 
figures  upon  which  these  percentages  were  based  came  from 

6  "  Selling  Forces,"   pp.   178-179.      (Curtis  Publishing  Co.) 

7  Bulletin   of  the   Bureau   of  Business   Research,  Harvard   University,   Number 
1,  May,  1913. 


8o 


ECONOMICS  OF  RETAILING 


stores  in  "  the  eight  large  cities  —  New  York,  Philadelphia, 
Baltimore,  Pittsburgh,  Cleveland,  Detroit,  Chicago  and 
Cincinnati.''  This  probably  accounts  for  the  wide  range  in 
total  expense,  and  probably  also  for  the  difference  between 
these  figures  and  those  found  by  the  writer  in  eight  Wiscon- 
sin shoe  stores. 

The  writer's  own  investigations  among  stores  in  Wis- 
consin show  the  following  results : 

Costs  of  Doing  Retail  Business  in  Wisconsin 


Kind  of 
Business 

Grocery    

Dry-goods  

Furniture 

Shoes    

Hardware   

Men's  clothing 

Drugs  

Jewelry    

Department  stores. . 

Five    and    ten    cent 

stores    


No.  of 
Stores 

Range 

17 

12-22% 

11 

16-25 

8 

22-28 

8 

16-27 

8 

17-26 

7 

2(>-»30 

3 

24-30 

4 

25-32 

11 

22-30 

2 

25-27 

Modal  Group 


No.  Falling 
Within  Mode 


141/2-17% 
11-22 
22-24 
21-23 
19-22 
27-30 


28 
26-27 


An  amount  of  data  sufficient  to  make  an  accurate  de- 
scriptive analysis  of  all  of  the  details  that  enter  into  the 
expenses  of  retailing  and  the  causes  for  their  variation  is 
not  yet  available.  It  is  not  likely  that  there  ever  will  be 
fully  satisfactory  information  upon  these  points  until  the 
Federal  government  can  be  induced  to  make  nation-wide  in- 
vestigations in  this  line,  much  as  the  Department  of  Agri- 
culture now  studies  and  reports  agricultural  conditions.  In 
the  chapters  which  follow  the  writer  has  taken  what  facts 
are  available  and  in  coming  to  more  or  less  tentative  con- 
clusions has  made  such  use  of  them  as  seems  warranted. 
The  next  step  in  this  field,  as  well  as  in  many  other  branches 
of  economics,  is  not  theorizing  but  the  gathering  of  more 
facts,  and  this  is  a  work  that  should  be  performed  in  the 


r 


THE  EXPENSES  OF  RETAILING  8 1 


interest  of  all  business  by  the  government  or  by  some  branch 
of  the  government. 

Bibliography 

Fernley,  Thomas  A.     "  Price  Maintenance."     Parts  II  and  III. 
Harvard    University,    Graduate    School    of    Business    Administration. 
Harvard  System  of  Accounts  for  Shoe  Retailers,  1914. 

Sammons,  W.  "Keeping  up  with  Rising  Costs."  (This  interesting 
book  first  appeared  as  a  series  of  articles  in  System.  It  contains 
summaries  of  costs  of  doing  business  in  1560  stores  scattered  over 
the  country,  from  which  conclusions  are  drawn  showing  how  to 
meet  the  rising  costs  tendency.) 


CHAPTER  VI 
RETAIL  SALESPEOPLE  AND  THEIR  WORK 

The  salespeople  constitute  the  typical  laborers  of  the  re- 
tail store.  It  is  mainly  with  them  that  the  public  comes  into 
contact,  and  upon  the  character  of  the  service  performed 
by  them  hinges  the  success  of  the  retail  store.  But,  as  has 
been  pointed  out,  selling  goods  is  not  the  only  labor  in  a 
store.  Goods  must  be  bought,  handled,  unpacked,  stored, 
re-packed  and  delivered.  Office  records  and  accounts  must 
be  kept,  correspondence  carried  on,  advertisements  written 
and  goods  displayed  in  windows  and  store.  Finally,  the 
building  must  be  kept  in  good  condition  as  to  heat,  light, 
ventilation,  and  cleanliness.  But  all  of  this  work  is  car- 
ried on  in  order  to  assist  and  make  more  efficient  the  selling 
end  of  the  business. 

The  ratio  of  the  number  of  salespeople  who  devote  their 
entire  attention  to  selling,  to  other  employees  in  a  store 
depends  upon  its  size.  In  a  small  store,  there  is  but  little 
division  of  labor.  Where  only  one  helper  is  hired,  he  may 
serve  alternately  as  salesman,  delivery  man,  janitor,  and 
possibly  as  bookkeeper.  Clean  division  of  labor,  under 
which  each  class  of  store  work  is  carried  on  by  a  separate 
group  of  laborers,  may  be  found  only  in  the  largest  stores; 
but  even  here,  buyers  and  stock  room  help,  as  well  as  several 
other  classes,  are  frequently  employed  for  part  of  their  time 
in  selling  goods,  especially  during  rush  times.  Hence  only 
an  approximation  of  the  share  of  store  labor  used  in  selling 
can  be  given.     Statistics  showing  the  actual  proportions  of 

82 


RETAIL  SALESPEOPLE  AND  THEIR  WORK         83 

both  sexes  employed  in  the  different  departments  of 
store  work  are  not  available.  But  in  the  United  States  re- 
port, ''Wage-Earning  Women  in  Stores  and  Factories," 
Vol.  V,  ''  Woman  and  Child  Wage-Earners  in  the  United 
States,"  page  41,  the  number  of  women  employees  in  26 
department  stores  of  New  York,  Chicago,  and  Philadelphia, 
employing  a  total  of  36,000  women,  were  classified  as  fol- 
lows : 

Percentage 
of  Whole 

Saleswomen    46.2% 

Cash  girls,  messengers,  inspectors,  bundle 

wrappers,  and  packers 13.2 

Office  employees 17.6 

Buyers  and  assistant  buyers 1.2 

Other  employees 21.8 


100 

From  the  above  it  appears  that  of  all  the  labor  that 
women  are  employed  to  do  in  large  stores,  selling  consti- 
tutes a  little  less  than  one-half.  As  indicated,  no  figures  are 
available  on  the  ratio  of  men  to  women  in  such  stores,  nor 
to  show  what  proportion  of  the  total  number  of  men  em- 
ployed in  stores  are  engaged  in  selling.  In  a  large  retail 
store  in  Boston  38  per  cent  of  the  selling  *  force  are  men.^ 
In  other  words,  if  this  store  is  typical  of  other  big  stores, 
there  are  almost  twice  as  many  saleswomen  as  salesmen  em- 
ployed. In  the  country  as  a  whole  the  proportions  are  re- 
versed. The  United  States  census  for  1900  showed  461,- 
909  salesmen  and  149,230  saleswomen.  The  Massachu- 
setts census  for  1905  showed  43,365  males  and  15,430  fe- 
males in  the  total  retail  selling  force  of  the  state.  In  both 
the  country  as  a  whole  and  in  the  State  of  Massachusetts, 

1  Massachusetts  Report  of  the  Commission  on  Minimum  Wage  Boards,  p.  96. 


84  ECONOMICS  OF  RETAILING 

salesmen  were  about  three  times  as  numerous  as  saleswomen. 
Only  in  stores  of  the  department  store  class  in  the  larger 
cities  does  the  number  of  saleswomen  exceed  the  number  of 
salesmen. 

The  entrance  of  women  into  the  field  of  retail  sales- 
manship is  one  of  the  noteworthy  developments  of  the  retail 
business  since  the  middle  of  the  nineteenth  century.  They 
were  first  employed  on  a  large  scale  in  some  of  the  largest 
dry-goods  stores  of  New  York,  and  soon  after  in  the  dry- 
goods  and  department  stores  of  practically  every  other  city. 

In  a  work  published  in  New  York  in  1856  it  was  stated 
that  the  employment  of  ladies  as  clerks  in  stores,  especially 
in  dry-goods  stores,  was  becoming  very  general  in  America.^ 
But  with  the  development  of  the  department  stores  beginning 
in  the  70's,  and  the  notion  and  variety  goods  stores,  best 
typified  today  in  the  5  and  10  cent  stores,  the  employment 
of  women  as  salespeople  seems  to  have  received  its  main 
advancement. 

The  work  of  the  salespeople  is  to  represent  the  store  in 
the  sale  of  its  goods.  The  existence  of  a  store  depends 
upon  two  things;  on  the  one  hand,  the  possibility  of  serving 
customers,  and,  on  the  other  hand,  the  possibility  of  getting 
a  remuneration  or  profit  for  performing  that  service.  The 
work  of  the  salespeople  must,  therefore,  be  such  as  to  satisfy 
customers  and  bring  profits  to  their  employers  at  the  same 
time. 

The  salesmen's  service  to  the  customer  consists  in  show- 
ing the  goods  the  store  has  gathered  together  for  sale,  ex- 
plaining and  demonstrating  the  qualities  and  uses  of  these 
goods,  and  helping  to  make  suitable  selections  or  secure 
proper  fittings.  For  this  service  the  salesman  presumably 
has  had,  or  should  have  had,  special  training,  so  that  the 
assistance  given  to  the  customer  may  have  an  expert  or 

2  Hunt,  F.,  "  Worth  and  Wealth,"  p.  499. 


RETAIL  SALESPEOPLE  AND  THEIR  WORK         85 

quasi-professional  nature.  After  prices  reach  stable  levels, 
the  natural  development  of  competition  between  dealers  leads 
towards  a  better  grade  of  selling  service  to  customers. 
Since,  according  to  the  view  of  many  merchandisers,  the 
general  levels  of  retail  prices  and  necessary  profits  within 
given  classes  of  retail  stores  have  been  fairly  well  established, 
we  may  expect  to  see  a  more  rapid  and  more  general  im- 
provement in  sales  service  in  the  future  than  obtained  in 
the  past. 

But  the  salesman  in  a  retail  store  cannot  confine  his 
entire  attention  to  the  interests  of  the  customer.  Such  sin- 
gleness of  purpose  might  occasionally  result  in  directing  a 
prospective  customer  for  a  particular  article  to  a  competitor's 
store.  Such  cases  are  not  unknown.  It  would  be  eminently 
desirable  if  such  practices  could  be  increased.  Such  co- 
operation could  be  carried  out  in  a  town  in  which  each 
store  agreed  to  handle  certain  lines,  to  confine  itself  to  these 
only,  and  to  direct  customers  for  other  lines  to  the  other 
stores.  The  usual  interests  of  business,  however,  require 
that  the  customer  must  be  supplied,  if  possible,  from  the 
store's  stock.  It  is  presumed  that  the  buyer  for  the  store  has 
exercised  good  judgment  in  selecting  suitable  stocks  of 
goods,  and  that  the  people  who  enter  the  store  may  want 
to  purchase  something  from  the  lines  represented  by  those 
stocks.  It  is  the  business  of  the  retail  salespeople  to  make 
the  connections  between  the  store's  goods  and  the  custom- 
ers' wants,  if  it  is  at  all  possible  to  do  so. 

In  the  selection  and  purchase  of  goods  most  customers 
are  governed  by  a  variety  of  considerations  —  many  of 
which  are  purely  matters  of  opinion  having  no  reasonable 
basis.  Likes  and  dislikes  cannot  always  be  explained  in 
any  logical  way,  and  many  of  them  are  subject  to  fre- 
quent and  radical  changes.  People  want  what  they  think 
they  want,  and  what  they  think  they  want  depends  largely 


86  ECONOMICS  OF  RETAILING 

upon  their  knowledge  of  goods  and  their  habits  of  using 
them.  To  influence  the  customer  in  favor  of  his  goods,  the 
salesman  must,  therefore,  convey  as  many  ideas  as  he  can 
concerning  those  goods  —  their  qualities,  uses,  the  satisfac- 
tion that  may  be  derived  from  their  use,  and  so  on. 

The  average  customer  has  a  great  number  of  desires, 
only  some  of  which  he  can  satisfy  with  the  money  at  his 
disposal.  These  desires  compete  for  satisfaction  in  his  own 
mind.  For  purposes  of  clearness  we  may  consider  them 
in  two  categories  —  desires  for  entirely  different  classes  of 
goods,  and  desires  for  goods  of  the  same  kind  but  of  dif- 
ferent qualities.  All  of  these  desires  are  of  unequal  in- 
tensity. Among  goods  of  different  kinds,  desires  will  tend 
to  be  satisfied  in  order  of  intensity.  For  example,  if  a  work- 
ingman  feels  that  he  needs  a  new  hat,  a  pair  of  shoes,  and  a 
pair  of  gloves,  but  does  not  feel  that  he  can  afford  to  buy 
all  three  at  the  same  time,  he  will  decide  to  take  that  which 
he  feels  he  needs  the  most  at  the  present  time.  At  a  later 
time  he  will  take  what  he  then  needs  most,  and  so  on.  He 
may  purchase  the  shoes  first,  the  gloves  a  week  later,  and 
the  hat  a  week  after  that.  Among  goods  of  the  same  kind, 
the  customer  selects  that  which  promises  the  greatest  amount 
of  satisfaction  —  such  as  wear,  comfort,  and  appearance  — 
for  his  money. 

A  salesman  handling  gloves  might  in  many  cases  show 
to  the  man  who  had  decided  to  buy  shoes  that  a  pair  of 
gloves  would  be  more  desirable.  He  might  point  out  that 
the  customer's  shoes  could  be  re-soled  and  that  they  would 
then  wear  for  a  long  time  to  come,  and  that  the  on-coming 
cold  weather  would  make  it  very  disagreeable  to  get  along 
without  gloves,  and,  finally,  that  the  cost  of  repairing  the 
shoes  and  of  a  new  pair  of  gloves  might  not  be  more  than 
for  a  new  pair  of  shoes.  By  following  the  salesman's  sug- 
gestion the  customer  would  thus  have  not  only  his  feet 


RETAIL  SALESPEOPLE  AND  THEIR  WORK         87 

cared  for  serviceably,  but  also  his  hands ;  whereas,  otherwise 
he  would  have  to  stand  the  discomforts  of  going  bare- 
handed for  another  week.  Supplementing  these  ideas,  the 
salesman  would  show  the  customer  suitable  gloves,  point  out 
their  desirable  qualities  —  durability,  comfort,  warmth  and 
good  appearance  —  and  thus  help  to  build  up  the  customer's 
thoughts,  and,  consequently,  his  desires  for  gloves. 

A  customer  who  has  decided  upon  what  kind  of  goods 
he  wants,  is  still  confronted  by  the  problem  of  getting  the 
most  for  his  money.  There  are  many  kinds  of  shoes  of 
many  different  qualities.  The  work  of  the  salesman  is  to 
find  the  shoe  from  his  stock  that  will  serve  the  customer  best, 
and  then  explain  it,  fit  it,  and  get  the  customer  to  appreciate 
it  more  highly  than  any  competing  shoe. 

What  the  salesman  does  in  either  case  may  be  sum- 
marized as  follows :  He  presents  to  the  customer's  mind  by 
all  possible  methods,  ideas  about  his  goods  that  will  build 
up  a  favorable  impression,  so  that  when  it  comes  to  the 
time  of  deciding  what  to  buy,  the  customer's  desire  for  the 
given  article  that  the  salesman  is  trying  to  sell  is  clearly 
much  stronger  than  any  other  desire  he  may  have  for  other 
goods  of  either  different  or  the  same  kind.  Using  the 
economist's  term,  "  marginal  utility,"  which  simply  means 
the  intensity  of  demand  felt  for  any  goods,  we  may  say 
that  the  marginal  utility  for  almost  any  article  is  an  ex- 
tremely variable  thing  with  most  people,  not  only  as  between 
different  things  but  also  for  the  same  thing  considered  at 
different  times  and  under  different  circumstances  for  any 
one  person.  What  the  salesman  does  for  his  employer  is  to 
raise  the  marginal  utility  of  the  article  he  is  trying  to  sell 
to  such  a  point  that  in  the  customer's  mind  it  overtops  the 
marginal  utility  of  all  other  goods  at  that  particular  time. 

The  question  may  be  raised  at  this  point  as  to  whether 
this  is  in  the  interests  of  the  consumer  and  of  society  at 


88  ECONOMICS  OF  RETAILING 

large.  In  answer  it  may  be  pointed  out  that  desires  had 
to  be  aroused  and  intensified  in  order  to  introduce  into 
general  use  practically  every  article  of  modern  convenience 
and  comfort.  It  was  salesmanship  that  put  the  sewing  ma- 
chine, range,  gas  stove,  electrical  appliance,  musical  instru- 
ment, washing  machine,  and  vacuum  cleaner  into  the  home. 
Salesmanship  has  introduced  practically  all  great  improve- 
ments and  devices  into  every  line  of  business  and  industrial 
life.  Without  salesmen  our  present  material  development 
would  be  inconceivable.  Salesmen  are  the  present  time 
teachers  of  the  people  in  the  arts  of  progress,  and,  as  such, 
rank  with  the  schools  and  the  press. 

The  social  importance  of  good  salesmanship  can  be  ; 
pointed  out  very  well  by  showing  the  failures  of  salespeople 
of  the  past  generation.  As  one  goes  through  homes  and 
notes  the  incongruous  furnishings,  lacking  both  in  art  and 
in  usefulness,  one  cannot  help  but  think  of  the  wasted  op- . 
portunity  of  salesmen  to  point  out  to  purchasers  how  —  and 
generally  without  additional  expense  —  they  might  have  im- 
proved their  homes.  Much  of  the  wastes  of  American  cook- 
ery in  the  towns  and  cities  could  be  eliminated  by  a  word  of 
advice  given  by  skilled  grocers'  salesmen  now  and  then.  It 
is  said  by  shoemen  that  at  least  75  per  cent  of  adults  have 
troubles  with  their  feet  —  corns,  bunions,  ingrowing  toe- 
nails, broken-down  arches,  and  so  on.  Most  of  these  trou- 
bles are  directly  traceable  to  poor  shoe  fitting ;  in  other  words, 
poor  shoe  salesmanship.  Much  of  the  waste,  inefficiency, 
and  even  suffering  due  to  badly  furnished  homes,  poor 
clothing,  badly  fitted  garments  and  shoes,  wrongly  selected 
foods,  and  so  forth,  are  chargeable  to  a  very  large  extent  to 
bad  retail  salesmanship.  One  should  not  overlook  the  re- 
sponsibility of  the  consumer  for  being  in  the  plight  he  is 
often  in,  but  the  work  of  the  retailer  and  his  salespeople  as 


RETAIL  SALESPEOPLE  AND  THEIR  WORK         89 

purchasing  and  distributing  agents  for  the  community  might 
well  include  such  education  of  the  consumer  in  the  use  of 
materials  as  the  retailer  and  his  salesmen  are  best  fitted  to 
give.  There  is  unbounded  opportunity  for  progress  along 
these  lines. 

It  is  not  to  be  inferred  that  because  of  the  great  social 
services  the  salesmen  perform,  and  the  still  greater  ones  that 
there  are  opportunities  for,  that  there  are  no  evils  con- 
nected with  selling.  There  can  be  no  doubt  that  many  people 
are  led  to  place  too  high  estimations  of  value  upon  certain 
goods  that  common  sense  would  dictate  should  be  placed 
in  a  subordinate  order.  But  purchases  made  by  consumers 
are  largely  dictated  by  custom,  and  the  ultimate  satisfaction 
derived  from  the  purchase  must  determine  its  value  in  com- 
parison with  other  possible  purchases  and  the  wisdom  of  the 
purchase.  If  its  use  results  in  comparatively  little  satisfac- 
tion, then  we  may  say  that  the  purchase  was  unwise ;  other- 
wise, not.  Many  a  purchaser  has  been  called  a  fool  by 
his  acquaintances  for  investing  in  a  new  contrivance  which 
ultimately  brought  him  great  results,  and  many  an  unwise 
purchase  has  been  made  by  consumers  where  no  salesman's 
persuasion  had  anything  to  do  wath  it  whatever.  It  is 
likely  that  no  more  people  have  been  deluded  into  buying 
things  they  did  not  need,  and  could  not  get  full  value  from, 
than  have  been  deluded  into  voting  the  wrong  ticket  and  for 
the  wrong  men  in  politics,  or  into  taking  any  other  un- 
wise individual  or  social  action.  Evils  in  other  lines  do  not 
excuse  evils  in  selling,  but  an  understanding  of  the  general 
prevalence  of  such  things  causes  one  to  take  a  broader  view 
of  the  matter.  One  of  the  main  results  to  be  hoped  for 
from  a  thorough  system  of  educating  salespeople  for  their 
work  is  a  clearer  and  keener  conscience  upon  this  point.  As 
a  further  remedy  the  practice  now  followed  by  many  stores 


90  ECONOMICS  OF  RETAILING 

of  exchanging  goods  freely,  or  of  refunding  the  purchase 
price,  if  customers  are  not  satisfied  with  the  goods,  offers  al- 
most a  complete  remedy. 

The  great  evils  frequently  associated  with  salesmanship 
are  dishonesty  and  misrepresentation.  If  goods  are  de- 
clared to  possess  qualities  which  they  do  not  possess,  and 
which  the  customer  cannot  safely  pass  judgment  upon,  a 
great  wrong  is  perpetrated.  Under  such  circumstances  the 
customer  buys  thinking  that  he  is  receiving  what  he  is  really 
not  getting  at  all.  Much  of  this  dishonesty  appeared  in  the 
old  time  "  puffing  "  of  goods,  horse  traders'  bragging,  and 
merchants'  higgling.  Much  of  it  has  survived,  though  in 
decreasing  proportions,  down  to  the  present  day.  The  at- 
tempt is  now  under  way  to  purge  advertising  of  this  fault; 
and  the  next  step  is  to  hold  salespeople  equally  responsible 
for  every  statement  they  make. 

A  most  insidious  form  of  dishonesty  in  selling  is  that 
committed  by  manufacturers  who  adulterate  or  misbrand 
their  products.  Retail  salesmen  may  be  and  are,  in  many 
cases,  as  helpless  before  this  form  of  dishonesty  as  the 
customers  themselves. 

Nothing  but  close  public  supervision  and  regulation  will 
eliminate  such  forms  of  dishonesty.  Opponents  of  public 
interference  in  business  must  bear  in  mind  that  rules  are 
necessary  in  all  situations  where  people  come  together, 
whether  it  be  a  game  or  a  public  assembly.  Regulation 
supplies  the  rules  under  which  business  must  be  conducted. 
Its  purpose  is  to  provide  fair  play  to  all  concerned. 

The  factors  of  successful  salesmanship  are  the  salesper- 
son's knowledge,  experience,  attitude  towards  the  work,  and 
personality. 

The  knowledge  referred  to  is  that  which  applies  directly 
to  the  work  of  the  retail  store  —  knowledge  of  the  qualities 
and  uses  of  the  goods  sold  and  the  ability  to  describe  them 


RETAIL  SALESPEOPLE  AND  THEIR  WORK         91 

properly  to  prospective  customers;  knowledge  of  people, 
their  traits  and  ways  of  thinking,  their  ways  of  using  goods, 
their  methods  of  arriving  at  an  appreciation  of  values,  their 
standards  of  living,  their  consumption  habits  and  customs; 
knowledge  of  the  store,  its  plans  and  policies,  and  of  its 
stock,  so  that  no  time  need  be  wasted  in  locating  the  goods 
wanted  when  serving  a  customer.  Experience  is  needed  to 
give  deftness  in  handling  and  apply  these  forms  of  knowl- 
edge.^ 

The  attitude  towards  the  work  is  highly  important.  The 
salesperson's  constant  contact  with  the  customer  and  the 
ultimate  relationship  between  the  goods  offered  and  the 
salesperson  in  the  customer's  mind,  make  it  highly  imperative 
that  the  salesperson  present  a  mental  attitude  that  is  favor- 
able to  salesmaking.  What  this  attitude  must  be  is  some- 
what difficult  to  define  except  in  most  general  terms.  It 
involves  a  liking  for  the  work,  a  liking  for  people  and  hu- 
man nature  of  all  kinds,  an  optimistic  view  of  life  and  its 
problems,  enthusiasm  and  ambition.  The  salesman  must 
feel,  not  make-believe,  that  he  has  a  great  work  to  perform, 
that  he  is  one  of  the  luckiest  of  mortals  to  have  the  oppor- 
tunity, and  that  every  person  who  approaches  his  counter 
is  his  possible  friend.  Liking  for  the  work  and  a  feeling 
of  friendliness  to  all  people  are  the  most  essential  elements 
of  this  attitude. 

Personality  is  a  great  factor  in  all  kinds  of  selling.  It 
is  not  only  the  goods  themselves  but  the  manner  in  which 
they  are  to  be  sold  that  counts  in  marketing.  Every  detail 
of  the  salesman's  personality,  whether  pleasing  or  otherwise, 
exerts  an  influence  on  the  customers  with  whom  the  sales- 
man comes  in  contact.  This  influence  is  not  by  any  means 
the  same  on  all.  Each  element  of  personality  has  its  own 
peculiar  effect  on  each  customer.  But  in  general,  the  sales- 
man with  a  disagreeable  personality  loses  a  certain  percent- 


92  ECONOMICS  OF  RETAILING 

age  of  the  sales  that  a  salesman  with  pleasing  personality 
would  hold. 

Personal  habits,  individual  peculiarities,  appearance,  and 
manners  all  count  in  the  make-up  of  pleasing  personality. 
To  many  customers  the  use  of  tobacco,  liquor,  and  chewing 
gum  are  offensive.  A  bad  breath,  harsh  voice,  too  loud 
speaking,  and  indirectness  of  manner  are  likewise  generally 
irritating  to  a  large  number.  Since  the  majority  of  cus- 
tomers are  women,  the  type  of  personality  that  pleases 
them  rather  than  men,  so  far  as  a  differentiation  can  be 
made,  is  to  be  preferred.  Friendliness,  courtesy,  defer- 
ence, sincerity,  and  tactfulness  are  essential  attributes. 

There  are  many  trying  situations  constantly  arising  in 
a  retail  store  that  make  it  difficult  for  any  salesperson  to 
pursue  an  ideal  course.  Especially  are  the  younger  ones 
tempted  to  assert  combativeness  or  antagonism  to  certain 
types  of  customers.  There  is  a  strong  tendency  in  this 
country,  as  elsewhere,  towards  caste  and  class  ideals.  Many 
shoppers  look  upon  salesgirls  as  a  class  of  servants.  This 
is  frequently  resented.  A  large  number  of  the  young 
women  who  are  employed  in  stores  have  chosen  this  kind  of 
work  rather  than  domestic  service,  even  at  a  lower  net  wage, 
simply  because  store  work  seemed  to  offer  them  a  higher 
class  or  plane  of  social  life.  They  are,  therefore,  socially 
ambitious;  and  when  the  shopper  looks  down  upon  them  as 
a  class  beneath,  they  are  likely  to  disregard  the  possibility 
of  making  sales,  and  think  only  of  showing  the  customer 
a  spirit  of  independence  and  an  attitude  of  "  I  am  as  good 
as  you."  Such  salespeople  rebel  unconsciously  at  the  bear- 
ing of  a  shopper  who  looks  at  the  saleswoman  as  a  maid  or 
servant.  The  more  successful  salespeople  are  able  to  look 
upon  all  such  situations  in  a  philosophical  manner,  while 
rendering  the  service  that  the  shopper  exacts  in  the  manner 
desired. 


RETAIL  SALESPEOPLE  AND  THEIR  WORK        93 


i 

V  The  underlying  bases  of  the  factors  of  successful  sales- 
P  manship  are  clearly  good  health  and  proper  education,  or, 
in  other  words,  a  good  physical  and  mental  equipment. 
Proper  education,  we  are  coming  to  understand,  includes  not 
only  a  training  of  the  mind  to  perform  mental  tasks,  but 
also  the  ability  to  control  and  mold  the  body  to  the  uses 
of  the  mind.  In  a  certain  sense,  proper  education  is  one 
of  the  first  requisites  to  good  health,  for  health  depends 
largely  if  not  entirely  upon  proper  attention  to  such  mat- 
ters as  food,  fresh  air,  clothing,  rest  and  sleep,  and  exer- 
cise. The  proper  use  of  these  does  not  come  naturally  to 
anyone.  Experience  is  the  source  of  the  knowledge  of 
right  living  for  most  people,  but  experience  is  a  costly 
teacher.  Training  under  the  direction  of  skilled  teachers, 
whether  in  person  or  through  books,  promises  much  greater 
returns. 

Good  health,  a  clear  mind,  and  plenty  of  surplus  energy 
when  well  directed  are  magnets  of  trade  and  sales.  The 
influence  of  health  on  disposition  and  personality  is  well 
recognized,  as  is  also  its  influence  on  memory  and  clear 
thinking.  Good  health,  optimism,  and  cheerfulness  tend  to 
associate  closely,  and  the  relation  of  all  of  these  to  selling 
we  have  already  seen.  There  is  no  calling  in  which  the  fac- 
tor of  good  health  and  the  external  evidences  of  it,  such  as 
good  posture,  lively  step,  bright  eye,  and  clear  skin  count  for 
so  much.  One,  in  this  field  of  work,  who  does  not  possess 
these  qualities  is  handicapped  from  the  start. 

The  salesperson  should  give  special  attention  to  the  care 
of  the  feet,  correct  shoe  fitting,  and  the  avoidance  of  shoes 
that  are  too  tight,  too  short,  or  that  have  too  high  heels. 
They  are  on  their  feet  so  much  of  the  time  that  lack  of  atten- 
tion to  such  details  as  these  is  likely  to  cause  a  great  deal 
of  trouble.  The  use  of  rubber  heels  and  a  moment's  rest 
by  sitting  down  now  and  then  are  suggested  as  helpful  ex- 


94  ECONOMICS  OF  RETAILING 

pedients.  Cork  mats  back  of  the  counters,  or  other  pad- 
dings for  the  floor,  have  been  provided  in  some  retail  stores 
to  reduce  the  strain  and  fatigue  on  salespeople's  feet.  Many 
stores  provide  the  services  of  a  skilled  chiropodist  to  care 
for  the  feet  of  the  salespeople. 

The  physician,  or  at  least  a  nurse,  has  come  to  be  a  regu- 
lar employee  of  most  of  the  larger  stores  of  the  country,  and 
the  chief  duties  of  these  are  to  prevent  employees  from 
becoming  ill,  to  watch  for  signs  of  physical  breakdown,  and 
to  provide  means  of  prevention.  Dentists'  services  are  of- 
fered in  some  cases,  and  suggested  in  many  other  stores. 
The  importance  of  health  on  selling  has,  therefore,  not  only 
been  recognized,  but  means  have  been  taken  to  insure  that 
it  shall  be  secured. 

Proper  education  for  selling  requires  two  kinds  of  prepa- 
ration :  first,  such  general  education  as  is  now  given  to  every 
youth  in  the  public  schools  —  general  culture;  and,  second, 
special  vocational  training  fitting  the  prospective  salesper- 
son for  his  or  her  chosen  work.  The  latter  should  consist 
of  special  education  about  the  goods  that  are  to  be  handled, 
the  routine  practice  followed  in  stores,  and  a  study  of  people. 
The  study  of  people,  when  properly  developed,  will  probably 
consist  of  an  elementary  course  in  psychology,  social  psy- 
chology, and  sociology.  It  is  only  recently  that  it  has  come 
to  be  felt  that  the  results  from  these  sciences  may  be  applied 
to  practical  business  affairs,  although  the  first,  psychology, 
has  been  considered  as  a  basis  for  the  study  of  pedagogy 
for  many  years.  But  the  psychological  problems  of  the 
teacher  and  the  salesperson  are  essentially  the  same,  and 
whatever  in  the  science  of  psychology  has  been  found  of 
value  in  explaining  the  processes  of  learning  may  likewise 
be  used  in  explaining  the  processes  of  selling.  The  sales- 
man teaches  and  the  teacher  sells.  In  both,  the  essential 
thing  is  the  conveyance  of  ideas.     The  only  difference  be- 


RETAIL  SALESPEOPLE  AND  THEIR  WORK 


95 


tween  the  two  is  that  in  the  case  of  the  salesman  the  ideas 
are  conveyed  in  the  hope  that  they  will  function  or  cause 
decision  at  once,  while  with  the  teacher,  the  practical  func- 
tioning of  the  ideas  conveyed,  except  through  recitation,  is 
often  postponed  for  a  long  time. 

Specific  education  for  retail  salespeople  through  the  pub- 
lic schools  is  now  under  consideration  in  several  places. 
Some  experiments  have  already  been  made  in  Extension 
Divisions  of  the  Universities  of  Wisconsin  and  Minne- 
sota, in  the  Boston  public  schools,  in  Los  Angeles,  and  in 
a  dozen  or  more  other  places.  Many  retail  stores  have  edu- 
cational departments  for  their  own  employees.  In  addi- 
tion to  these  educational  beginnings,  much  is  already  being 
accomplished  through  the  retail  trade  papers  whose  contents 
and  evident  purposes  have  greatly  changed  and  improved 
during  the  last  ten  years.  The  trade  paper  is  rapidly  com- 
ing to  mean  to  the  retailer  and  his  salespeople  what  the  pro- 
fessional journals  mean  to  physicians,  lawyers,  and  teachers 
respectively. 

The  need  for  specific  education  for  those  who  are  to  be- 
come retail  salespeople  is  evident,  and,  as  we  have  seen,  the 
demand  is  likely  to  become  greater  as  time  goes  on.  It  may 
not  be  too  much  to  predict  that  such  training  will  soon  be 
considered  a  necessary  part  of  the  work  in  every  city  school 
system. 

Bibliography 

Atkinson,  W.  W.     "  The  Psychology  of  Salesmanship,"  1913. 
Beaching,  C.  L.     "  Grocery  Business,"  Chap.  x. 
Beynon,  R.    "  Drapery  and  Drapers'  Accounts." 

Corbion,  W.  A.    "  Principles  of   Salesmanship,  Deportment  and  Sys- 
tem," 1907. 
Educational  Training  Course.    Retail  Shoe  Salesman's  Guide,  1913. 
Farrington,  F.    "The  Clerk's  Book,"  1907. 
Fowler,  N.  C.    "  Practical  Salesmanship,"  1911. 
Goddard,  F.  B.     "  The  Art  of  Selling,"  1889. 


96  ECONOMICS  OF  RETAILING  ^   ; 

Higinbotham,  H.  N.    "  The  Making  of  a  Merchant,"  1911. 
Hirshler,  D.     "  The  Art  of  Retail  Selling,"  1909. 
Huff,  C.  L.    "  Huff's  Talks  on  Real  Salesmanship,"  1912. 
Nystrom,  P.  H.     "  Retail  Selling  and  Store  Management,"  1914. 
Puffer,  J.  Adams.    "  Vocational  Guidance,"  1913,  Chap.  XII,  Salesman- 
ship. 
Scott,  W.  D.     "  Increasing  Human  Efficiency  in  Business,"  1911. 


CHAPTER  VII 

THE  WAGES  OF  SALESPEOPLE 

Wages  in  a  retail  store  constitute  the  largest  single  ex- 
pense item,  and  out  of  this  total,  the  amount  paid  for  selling, 
that  is  to  salespeople,  is  normally  the  largest  part.  The 
expense  for  salespeople's  salaries  or  wages  varies  a  great 
deal  with  different  lines,  with  different  stores,  and  to  a  con- 
siderable degree  within  the  same  store,  and  even  within  the 
same  department.  For  example,  general  averages  for  five 
department  stores  known  to  the  writer  range  from  5  to  8 
per  cent  of  the  total  net  sales,  but  within  the  stores  the 
wages  of  the  salespeople  range  from  as  low  as  2^4  per  cent 
in  some  departments  to  as  high  as  12  per  cent  in  others. 
These  figures  are  corroborated  by  practically  every  state- 
ment of  department  store  expenses  that  has  been  made  public. 

The  following  ^  is  one  of  the  best  statements  that  has 
come  to  the  attention  of  the  writer.  It  shows  the  average 
percentage  of  expense  for  three  of  the  large  department 
stores  of  New  York,  and  also  the  specific  percentage  of 
expense  of  one  of  the  three  stores  for  1912,  1913,  and  1914. 
The  only  criticism  that  may  be  offered  from  the  standpoint 
of  the  purposes  of  this  chapter  is  that  the  figures  include 
not  only  salaries  for  salespeople  but  also  buyers,  stock 
clerks,  and  other  labor  directly  chargeable  to  the  department. 

1  Adapted   from   tables   presented  in  the  Dry   Goods  Economist,   September   27, 
1913,  OctQber  25,  1913,  April  25,  1914,  and   March  27,  1915, 

97 


98 


ECONOMICS  OF  RETAILING 


Percentage  of  Expense  for  Selling  by  Departments 
IN  New  York  Department  Stores 


Departments 


0) 

<u 

U   4^ 

u   >-< 

^  ^ 

<U    (L) 

£o„ 

£  2 

CO   ^ 

o  o 
•^-^  t^  ■* 

JH-B  ^ 

•-J    C«  iH 

'rt  «^  05 

"rt  vsJ 

(U   u   o 

3   (uS 

2  B^ 

o  rt  C 

3    £  ,H 

^^    c« 

^o.S 

<«^- 

<-- 

9.0% 

9.5% 

9.4% 

11.4% 

8.9 

7.9 

7.2 

6.9 

9.8 

11.1 

10.7 

11.6 

8.9 

1     8.1 

'     8.1 

5  6.6  Boys' 
I  9.4  Men's 

5.8 

. . 

9.8 

12.6 

9.0 

9.7 

8.0 

12.2 

9.9 

9.6 

6.3 

6.7 

9.9 

8.5 

6.1 

5.7 

5.9 

5.8 

9.4 

8.5 

8.5 

8.8 

6.6 

6.8 

7.6 

6.9 

6.0 

6.3 

6.0 

6.4 

7.3 

5.0 

4.9 

5.3 

9.4 

9.3 

9.2 

10.0 

8.2 

8.5 

8.1 

8.5 

6.4 

6.4 

6.9 

7.1 

8.7 

•• 

•• 

•• 

6.5 

4.9 

5.4 

5.6 

8.8 

8.5 

8.3 

8.7 

9.4 

7.7 

8.0 

8.6 

10.8 

10.8 

11.3 

11.7 

9.4 

7.4 

6.2 

8.8 

8.3 

8.3 

12.3 

15.7 

9.7 

8.8 

9.0 

9.1 

8.4 

8.4 

8.4 

8.4 

8.0 

7.1 

7.0 

j  8.1  Suits 
I  7.4  Coats 

7.7 

7.4 

7.7 

•• 

7.8 

8.0 

7.8 

6.5 

12.9 

13.1 

13.9 

13.9 

8.4 

9.3 

9.3 

10.6 

5.9 

4.7 

7.9 

6.2 

6.0 

j  6.8  Men's 
I  6.1  Women's 

9.5 

9.4 

10.0 

10.0 

7.7 

7.0 

6.8 

5  6.7  Waists 
I  4.9  Sweaters 

10.3 

9.9 

9.1 

9.4 

7.6 

6.2 

5.7 

6.5 

8.7 

7.0 

7.1 

7.7 

Books    and    stationery 

Carpets,  mattings,   rugs. . . . 
China,  glassware,  lamps  . . . 

Oothing  (men's  and  boys') 

Corsets    •  • 

Dress  goods 

Furniture  and  bedding  .... 

Furs 

Gloves    

Groceries   

Handkerchiefs     

Hosiery    

Infants'  wear  

Jewelry,  silverware,  cutlery 
Laces,  embroideries,  veilings 

Leather  goods  

Millinery    

Muslin,  underwear  and  un- 
derskirts     • . 

Neckwear    (women's)    .... 
Notions  and  art  embroidery 

Pictures     

Ribbons 

Sewing  machines    

Shoes    (women's)    

Silks  and  velvets  

Suits  and  coats   (women's) 

Suits  (misses')    

Toilet    goods,    drugs,    per- 
fumery     

Toys     

Trimmings    

Umbrellas,  parasols,  canes. 

Underwear  (knit)    

Upholsteries    

Waists  and  women's  sweat- 
ers     

Wash   goods    

White  goods,  linens 

Wrappers,  kimonas    


THE  WAGES  OF  SALESPEOPLE 


99 


Similar  ranges  in  percentages  are  frequently  found 
within  a  given  department.  The  writer  has  seen  cases 
where  salespeople  working  within  a  given  department  were 
costing  the  firm  from  3  per  cent  to  10  per  cent  of  their  sales, 
and  a  fact  of  interest  in  this  connection  is  that  those  sales- 
people costing  8  and  10  per  cent  were  receiving  the  lowest 
salaries.  A  girl  drawing  10  per  cent  of  her  sJles  was  get- 
ting $5  per  week  while  one  drawing  3  per  cent  was  getting 
$15  a  week.  The  opportunities  for  making  sales  were  about 
equal  in  both  cases,  except  that  the  $15  a  week  saleswoman 
was  of  such  well  known  excellence  that  customers  would 
wait  for  her  when  she  was  busy  with  other  customers  rather 
than  have  other  salespeople  attend  to  their  wants.  Nothing 
could  demonstrate  more  clearly  the  difference  between  sales- 
people than  such  facts  as  these.  From  a  business  stand- 
point, the  saleswoman  getting  $15  a  week  was  grossly  under- 
paid. She  should  have  received  at  least  $25  per  week,  while 
the  salesperson  who  was  getting  $5  per  week  was  much  over- 
paid. 

The  following  average  percentages  of  sales  for  salaries 
of  salespeople  may  prove  helpful :  ^ 

Groceries 7.96% 

Furniture 8.73 

Variety  stores 8.86 

Clothing 9.49 

Dry-goods 9.65 

Hardware 10.11 

Shoes 10.51 

Drugs 10.93 

Jewelry    10.96 

The  Harvard  Retail  Shoe  Store  Investigation  found  that 
salaries  for  the  sales  force  ranged  from  5  to  10.3  per  cent 

2  System,  Feb.,  1914. 


lOO  ECONOMICS  OF  RETAILING 

of  sales,  that  8  per  cent  was  a  common  figure,  and  that  7  per 
cent  was  a  good  efficient  level  of  expense.^ 

Salaries  for  boys  in  retail  stores  usually  start  at  from 
$3  up  to  $5  or  $6  a  week,  depending  upon  age,  strength, 
alertness,  and  general  indications  of  adaptability  to  the  busi- 
ness. Salesmen's  salaries  range  from  $12  to  $18  per  week 
generally.  In  a  few  cases,  salesmen  in  some  departments, 
and  in  specialty  stores  dealing  in  goods  such  a^  rugs,  fur- 
niture, or  silks,  receive  as  high  as  $35.00  or  $40.00  per 
week.  A  majority  of  the  men  in  retail  stores  never  pass 
$18  per  week.* 

Salaries  of  women  in  retail  stores  have  been  investi- 
gated in  several  places  in  the  country  during  the  last  few 
years  by  various  public  and  semi-public  organizations.  The 
reports  of  these  investigations  throw  considerable  light  upon 
the  economic  condition  of  saleswomen.  According  to  a 
special  government  report,  "  Wage-Earning  Women  in 
Stores  and  Factories,"  female  employees  in  36  department 
and  other  retail  stores  in  New  York,  Chicago,  and  Phila- 
delphia received  salaries  or  wages  as  follows: 

'  Cash  girls,  messengers,  inspectors,  bundle  wrappers,  and 
packers  received  from  less  than  $3  up  to  $10  per  w^eek,  but 
more  than  two-thirds  of  them  were  getting  less  than  $5. 

Saleswomen  received  from  $3  up  to  $25  per  week  and 
even  more,  but  more  than  half  of  them  were  getting  from 
$6  to  $9  per  week. 

Of  all  women  employed,  76  per  cent  were  getting  less 
than  $10  per  week.  The  average  wage  for  all  women  em- 
ployees in  stores  was  found  to  be  $7.93.  The  average  for 
saleswomen  was  found  to  be  $8.84  per  week. 

Low  as  this  is,  this  figure  was  found  to  be  somewhat 

3  Bulletin   of  the   Bureau   of   Business   Research,    Harvard   University,   Number 
1,   May,   1913. 

4  "  The  Department  Store  and  Its  Opportunities  for  Boys  and  Young  Men," 
pp.  77-78. 


THE  WAGES  OF  SALESPEOPLE  lOi 

higher  than  for  women  employed  in  factories,  and,  besides, 
as  it  was  pointed  out,  the  saleswoman  continues  to  draw 
a  higher  and  higher  salary  after  the  factory-employed 
woman  ceases  to  get  any  better  pay.  The  tendency  to 
recognize  in  store  work  the  need  of  special  ability  acquired 
through  experience  is  clearly  evidenced  in  the  increase  in 
salaries  in  accordance  with  the  length  of  time  spent  in 
store  work.^ 

To  a  certain  extent,  it  also  seems  clear  that  the  limits 
of  salary  are  set  by  the  efficiency  of  the  employee  herself. 
The  general  levels  of  wages  for  salespeople  expressed  in  the 
average  percentage  cost  of  selling  are  probably  fixed  by 
forces  beyond  the  control  of  individual  salespeople,  but  the 
amount  of  income  based  upon  such  percentages  is  largely 
dependent  upon  the  skill  of  the  salesperson. 

Wages  in  retail  stores  are  usually  paid  on  a  time  basis, 
as  for  example,  so  much  per  week,  or  month ;  on  a  commis- 
sion basis,  as  for  example  5  per  cent  of  total  net  sales;  or 
on  a  combination  basis  of  a  certain  amount  per  week  plus  a 
commission  of  a  certain  percentage  on  all  sales  above  a  given 
amount.  While  salespeople's  salaries  must  always  bear  a 
certain  ratio  to  the  sales  made,  still  the  regular  time  wage 
is  widely  used  and  in  many  ways  has  much  to  commend  it. 
A  straight  commission  is  theoretically  the  ideal  method  of 
paying  salespeople,  but  in  most  retail  stores  is  very  difficult 
to  carry  out  properly.  Unless  very  carefully  established,  it 
may  lead  to  much  friction  among  the  employees/n  Some  of 
them  are  likely  to  rush  ahead  of  others  in  trying  to  get  an 
opportunity  to  serve  customers^thers  will  try  to  avoid  all 
other  work,  such  as  care  of  stock,  in  order  that  they  may 
be  ready  for  customers  all  of  the  timo^StTustomers  with 
small  orders  are  likely  to  be  neglected  for  those  with  large 

5  "  Wage-Earning  Women   in    Stores  and   Factories,"   Vol.    V   in   report   on   con- 
dition of  Woman  and  Child  Wage-Earners  in  the  United  States,  pp.  41-48, 


I02  ECONOMICS  OF  RETAILING 

ones.v^Salespeople  will  try  to  force  the  selling  so  as  to 
make  as  many  sales  as  possible  per  day.  Also  unless  a 
difference  is  made  in  the  commissions  paid  for  selling 
various  goods,  the  salespeople  are  likely  to  sell  only  the 
newest  and  most  desirable  goods,  leaving  old  stocks  and 
"  stickers  "  to  accumulate.  Cases  have  been  known  where 
some  of  the  salespeople  actually  hid  desirable  goods  so  that 
other  salespeople  in  the  same  department  could  not  make 
sales  from  them.  The  results  of  these  tendencies  are  hurt- 
ful, not  only  to  the  general  spirit  of  the  store,  but  also  to 
the  store's  trade. 

It  is  also  a  difficult  matter  to  adjust  commissions  at  the 
proper  level  for  each  of  the  great  variety  of  goods  handled 
by  most  stores.  Not  only  should  the  commission  be  ad- 
justed to  the  kind  of  goods,  but  should  also  be  adjusted  to 
different  articles  in  some  fair  proportion  to  the  difficulty  of 
selling  them.  For  example,  older  goods,  as  a  rule,  need 
higher  commission  rates  than  goods  just  received ;  novelties 
need  a  higher  rate  than  staples;  style  goods  and  goods  re- 
quiring care  and  time  in  fitting  need  higher  commission  rates 
than  goods  that  are  standard  all  of  the  time  and  which  take 
but  little  time  to  sell.  So,  while  the  commission  rate  is, 
theoretically,  the  best  plan  of  remunerating  salespeople,  it 
seems  practicable  only  in  stores  that  are  large  enough  to 
carry  the  division  of  selling  labor  to  a  very  fine  degree. 
When  a  salesperson  sells  nothing  but  handkerchiefs,  for 
example,  or  hosiery,  or  men's  collars,  a  flat  commission  rate 
is  possible. 

The  combination  of  a  straight  wage  and  a  commission  is 
much  more  generally  used  and  much  more  practicable  for 
most  stores.  Sometimes  a  commission  of  a  certain  percent- 
age, say  3  per  cent  or  5  per  cent  of  sales,  is  paid  after  a' 
certain  sales  quota  has  been  reached.  In  some  cases  addi- 
tional amounts  are  added  to  the  wage  in  the  form  of  a  bonus 


THE  WAGES  OF  SALESPEOPLE  103 

or  premium  for  sales  above  a  certain  quota,  for  punctuality, 
or  for  a  high  rating  based  on  a  consideration  of  sales,  free- 
dom from  errors,  punctuality,  and  so  on. 

Still  another  form  of  premium  commonly  used  is  the 
"  PM  "  or  "  spiff,"  a  special  payment  for  pushing  stock  that 
seems  to  have  developed  "  sticker  "  qualities.  Unseason- 
able goods,  and  other  goods  in  any  way  undesirable,  are 
frequently  marked  "  PM  "  and  the  salesman  succeeding  in 
selling  them  gets  the  stated  "  premium  "  or  "  spiff."  The 
amount  of  the  PM  usually  runs  from  10  cents  up  to  50 
cents  per  article,  depending  upon  the  kind  of  goods.  In 
selling  women's  garments,  a  1  per  cent  PM  is  quite  fre- 
quently used. 

Profit  sharing  is  another  device  for  remunerating  sales- 
people that  has  been  widely  heralded  as  the  solution  of  the 
wage  question,  but  has  not  yielded  the  results  generally 
hoped  for  by  its  advocates.  With  a  few  firms,  as  for  ex- 
ample, "  The  Great  Department  Store,"  of  Lewiston,  Maine, 
profit  sharing  has  apparently  proved  very  successful. 

The  methods  used  in  profit  sharing  schemes  vary  con- 
siderably. One  of  them  requires  that,  after  all  expenses 
for  the  year  or  other  period  of  settlement  have  been  paid, 
a  certain  percentage  of  profit,  say  6  per  cent,  is  set  aside  as 
the  net  profit  due  to  the  management.  All  remaining  funds 
are  distributed  among  the  employees.  In  other  cases,  after 
all  expenses  are  paid  the  net  profits  are  divided  among  labor, 
capital,  and  management  in  equal  parts.  In  other  cases, 
certain  parts  of  the  net  profits  are  set  aside  as  provident 
funds  to  be  paid  after  a  term  of  years  in  the  form  either  of 
an  old  age  pension,  or  an  annuity.  In  still  other  cases,  life 
insurance  for  employees  is  provided  from  the  net  profits.^ 
Several  of  these  features  are  combined  in  some  institutions, 
as  for  example  in  the  great  French  store,  the  Bon  Marche. 

6  Adams  and   Sumner,   "  Labor   Problems,"   Ch.   IX. 


I04  ECONOMICS  OF  RETAILING 

Among  the  American  stores  which  are  carrying  out  a 
plan  of  profit  sharing,  some  pay  a  certain  percentage,  say 
6  per  cent,  of  all  sales  in  excess  of  the  sales  for  the  same 
months  of  the  year  preceding,  while  others  pay  a  straight 
percentage,  say  3  per  cent,  on  all  sales  above  a  certain  point. 
These  methods  obviate  the  necessity  of  making  known  to 
the  sales  force  the  exact  financial  condition  and  net  profits 
of  the  concern. 

The  most  common  method  of  distributing  profits  is  on 
the  basis  of  the  salary  received,  that  is  to  say,  the  salesper- 
son whose  salary  is  $12  per  week  gets  twice  as  big  a  share 
of  the  profits  as  the  one  whose  salary  is  $6  per  week.  Some 
concerns  distribute  upon  the  basis  of  sales,  and  others  dis- 
tribute in  a  more  or  less  arbitrary  fashion,  thus  hoping  to 
equalize  the  differences  in  the  conditions  and  the  opportuni- 
ties for  making  sales  of  all  members  working  in  the  store. 

Another  common  form  of  profit  sharing  is  the  distribu- 
tion of  shares  of  stock  or  other  evidences  of  ownership  to 
employees,  either  upon  favorable  purchasing  terms  or  as  a 
reward  for  faithful  service  over  a  term  of  years. 

The  purposes  of  profit  sharing,  premium  paying,  and 
bonus  granting  are,  first,  to  get  the  salesman  to  use  his  own 
initiative  and  ambition  in  furthering  the  business  of  the 
concern,  and,  second,  to  tie  the  good  employees  to  the  con- 
cern so  that  they  cannot  be  drawn  away,  either  into  inde- 
pendent businesses  of  their  own  or  to  competitors.  These 
purposes  demand  that  the  systems  adopted  must  be  such  as 
to  avoid  such  friction  among  salespeople  as  straight  com- 
missions arouse;  that  the  rewards  must  be  great  enough  to 
awaken  their  interest  and  ambition;  and  that  settlements 
should  be  made  frequently  enough  to  keep  the  end  of  the 
period  in  mind  from  the  start,  and  yet  have  it  long  enough 
so  that  the  amount  payable  at  its  end  in  the  form  of  profit, 
shares,  bonuses,  or  premiums  may  seem  worth  while.     Bo- 


THE  WAGES  OF  SALESPEOPLE  105 

nus  and  premium  schemes  apparently  work  best  in  institu- 
tions that  give  every  employee  a  chance  to  earn  something 
extra  besides  a  regular  salary,  and  which  adjust  the  rules 
or  conditions  of  earning  the  bonuses  or  premiums  so  that 
those  who  are  engaged  in  places  in  the  store  unfavorable  to 
making  a  good  showing  are  given  all  due  allowance. 

Premiums  in  the  form  of  PM's  and  spiffs,  prizes  and 
commissions  for  sales  above  quota  are  usually  paid  weekly, 
or  whenever  the  regular  wage  is  paid.  Profit  shares  and 
bonuses  are  generally  paid  annually  or  semi-annually.  The 
argument  for  the  annual  payment  is  that  in  this  length  of 
time  the  shares  or  bonuses  amount  to  a  good  deal  in  the 
case  of  the  best  salespeople,  and  the  prospect  of  losing  this 
amount  keeps  them  from  seeking  employment  elsewhere, 
at  least  until  after  these  bonuses  have  been  paid.  Such 
payments  are  usually  made  at  about  the  beginning  of  the 
calendar  year,  or  just  after  the  holiday  rush  of  trade. 

In  practice  salespeople  receive  remuneration  other  than 
direct  salaries  in  a  variety  of  ways.  Discounts  of  from  10 
to  20  per  cent  on  merchandise  purchased  from  the  store  are 
granted  by  many  stores.  The  lower  figure  is  the  most  com- 
mon. A  few  stores  allow  no  discounts  at  all,  and  most 
stores  give  discounts  to  apply  only  on  goods  for  the  sales- 
person's personal  use.  A  few  stores  add  the  proviso  that 
discounts  shall  apply  only  on  goods  for  personal  use  or  for 
the  use  of  persons  wholly  dependent  upon  the  salesperson. 
Special  discounts  are  usually  given  on  dress  goods  to  be 
used  in  making  uniforms  required  by  stores  for  their  em- 
ployees. 

Gifts,  prizes  for  suggestions,  Christmas  presents,  vaca- 
tions on  full  pay,  occasional  banquets,  gymnasium  suits, 
musical  instruments  for  bands,  books  and  papers  for  the 
employees  to  read,  educational  courses  in  salesmanship,  in 
millinery,  in  domestic  science,  in  art,  in  elocution,  in  music, 


I06  ECONOMICS  OF  RETAILING 

dancing,  and  foreign  languages  are  frequently  supplied  t< 
employees. 

Under  the  head  of  welfare  work,  large  stores  go  into 
great  many  things  of  interest  and  value  to  their  employees^ 
Singing  societies,  baseball  clubs,  orchestras,  bands,  theatri-i 
cal  societies,  cadet  corps,  athletic  clubs,  literary  societies,  an< 
other  organizations  are  established  and  assisted."^ 

The  larger  stores  encourage  thrift  and  economy  amonj 
employees  by  means  of  savings  and  loan  associations,  sicl 
and  death  benefit  associations,  and  even  by  building  and  loai 
associations.     The  purpose  of  the  savings  and  loan  associa- 
tion is  to  encourage  all  members  to  lay  aside  a  fixed  sum 
of  money  every  pay  day,  and,  in  cases  of  need,  to  make 
loans  to  individual  shareholders  at  reasonable  rates  of  in- 
terest.    By  this  means  the  loan  shark  business,  which  has 
always  obtained  some  patronage  among  retail  salespeople,  is 
materially  reduced. 

The  sick  and  death  benefit  associations  collect  regular 
dues  from  their  members  during  earning  periods  and  then 
pay  weekly  benefits  in  case  of  sickness,  and  a  stated  amount 
to  the  deceased's  family  in  case  of  death. 

The  following  tables  indicate  the  amount  of  dues  col- 
lected and  benefits  paid  by  typical  benefit  associations.  The 
general  rules  governing  membership  follow  each  table. 

EsPENHAiN  Employees'  Mutual  Benefit  Association 

Sick 

Qass               Salary  Dues  per  Benefits  Death 

per  Week  Month  per  Week  Benefits 

A    $2-$4  10c  $2.00  $50.00 

B    4-6  20  3.50  50.00 

C    6-9  30  5.00  50.00 

D   9  and  up  40  8.00  50.00 

7  Employers'  Welfare  Work,  Bui.  123,  U.  S.  Bureau  of  Labor  Statistics  (1913). 
Tolman,  W.  H.,   "  Social  Engineering,"  pp.  48-61    (1909). 


THE  WAGES  OF  SALESPEOPLE 


107 


Membership  is  voluntary  and  granted  upon  written  application. 

An  employee  must  have  been  a  member  of  the  association  at  least  30 
days  prior  to  his  or  her  sickness  in  order  to  be  entitled  to  benefits. 

Notice  of  sickness  must  be  made  in  writing  within  three  days. 

Notice  must  be  accompanied  by  a  physician's  certificate. 

If  illness  continues  for  more  than  one  week,  physician's  certificate 
must  be  for  each  week. 

Benefits  are  not  paid  for  less  than  one  week  nor  more  than  twelve 
weeks  within  a  year. 

Any  person  feigning  sickness  or  disability,  in  order  to  procure  bene- 
fits, is  expelled  by  the  board  of  directors,  and  may  not  be  reinstated. 

All  late  and  error  fines  collected  from  all  employees  of  the  concern 
go  into  the  benefit  fund. 

Benefit  funds  are  invested  either  in  first  mortgages,  bonds,  or  with  a 
reliable  bank  or  trust  company. 

The  Wanamaker  Mutual  Insurance  Association 
OF  Philadelphia 

Sick 

Class               Salary  Dues  per  Benefits                  Death 

per  Week  Month  per  Week  Benefits 

jlst     Below  $3  10c  $1.50  $  50.00 

2nd    $3-$  5  25  2.50                        100.00 

3rd    5-7  40  4.00                       125.00 

4th     7-10  50  5.00                        150.00 

5th     10  and  up  60  6.00                       200.00 

Membership  is  compulsory.  All  regular  employees  of  the  firm  shall 
be  members  and  eligible  to  benefits. 

No  member  shall  be  eligible  for  benefits  until  after  having  been  in 
actual  service  three  full  months. 

Benefits  shall  not  be  paid  for  a  period  exceeding  thirteen  weeks  from 
date  of  illness. 

Notice  must  be  sent  to  the  secretary  of  the  association  within  three 
days  of  the  date  of  sickness. 

Only  half  benefits  shall  be  paid  for  the  first  week  of  any  illness. 

If  dues  do  not  cover  the  necessary  benefits,  special  assessments  may 
be  made,  and  regular  dues  may  be  omitted  if  funds  in  the  treasury  are 
sufficient  for  current  needs. 

The  firm  of  John  Wanamaker  will  be  or  shall  appoint  the  treasurer. 

In  the  development  of  great  movements  of  these  kinds 
the  progressive  department  stores  of  the  country  have  al- 


io8  ECONOMICS  OF  RETAILING 


ways  led.  John  Wanamaker  in  his  Philadelphia  and  Ne 
York  stores,  Marshall  Field  in  Chicago,  and  Wm.  Filene's 
Son's  Company  in  Boston  are  well  known  concerns  that 
present  the  highest  type  of  organization  for  the  individual 
and  social  betterment  of  employees,  entirely  aside  from  the 
regular  work  of  the  store.  Such  effort  for  the  benefit  of 
employees  would  be  quite  impossible  for  a  small  store. 

Coupled  with  the  wage  system  there  is  in  many  stores  a 
system  of  fines  imposed  upon  salespeople  and  other  em- 
ployees for  tardiness,  errors  in  making  out  sales  checks,  for 
breakage,  for  mismatching  goods,  and  so  on.  No  part  of 
the  retail  store  system  has  caused  so  much  ill  will  among 
its  employees  as  the  application  of  fines  in  a  careless  way. 
In  fact,  it  has  seemed  very  difficult  to  assess  fines  in  any  way 
that  did  not  create  trouble  sooner  or  later.  It  is  generally 
reported  that  the  system  is  on  the  wane.® 

The  generally  low  wages  prevailing  in  the  retail  business 
have  attracted  a  great  deal  of  attention  not  only  from  the 
standpoint  of  economists,  social  workers,  and  the  public  at 
large,  but  also  from  thinking  merchants.  The  wages  of 
salespeople  are  admittedly  low,  but  the  supply  of  people 
ready  to  go  to  work  in  stores  has  nearly  always  been  more 
than  adequate.  In  consequence  the  wages  have  been 
pushed  down  to  a  point  at  which  an  adult  finds  difficulty  in 
supporting  himself  or  herself  upon  the  average  amount  paid. 
The  situation  has  been  complicated  by  the  fact  that  there 
have  been  no  standards  of  efficiency,  no  special  qualifica- 
tions or  skill  required  for  entrance  into  the  business,  and 
by  the  employment  of  great  numbers  of  very  young  people. 
Over  two-thirds  of  all  saleswomen  investigated  by  the  Mas- 
sachusetts Minimum  Wage  Board  Commission  were  under 
the  age  of  24  years. 

8  Report    of    the    Massachusetts    Commission    on    Minimum    Wage    Boards,    pp. 
106-107. 


THE  WAGES  OF  SALESPEOPLE  109 

The  employment  of  women  has  complicated  the  matter 
still  more  because  of  the  fact  that  a  very  large  proportion 
of  them,  three- fourths  or  more,  according  to  the  reports  of 
all  investigators,  live  at  home  or  with  relatives.  A  large 
number  of  these  are  not  required  to  contribute  to  the  sup- 
port of  their  homes,  and  may,  therefore,  use  their  wages 
as  "  spending  money."  Some  are  even  partly  supported  by 
other  members  of  the  family,  while  only  comparatively  few 
have  to  help  support  others.  The  general  average  youth  of 
female  workers  shows  that  they  are  dropping  out  of  the 
occupation  of  retail  salesmanship  after  a  few  years'  work  at 
the  most.  Work  in  the  store  serves  merely  to  tide  over 
the  period  from  the  time  that  they  reach  sufficient  maturity 
to  be  gainfully  employed  to  the  time  of  marriage.  These 
facts  cause  women,  in  particular,  to  accept  work  of  this  kind 
at  lower  than  living  rates,  and  thus  cause  wages  for  the 
whole  class  of  retail  salespeople  to  fall  to  their  present  low 
levels.  The  general  result  is  a  big  unsettled  problem  for 
the  independent  salesman  or  saleswoman  who  is  supporting 
himself  or  herself  and  wishes  to  make  a  life-work  of  sales- 
manship in  retail  stores. 

One  of  the  methods  proposed  to  meet  this  problem  is 
the  establishment  of  a  minimum  wage.  In  discussions  of 
this  subject  one  finds  the  idea  emanating  from  three  different 
sources.  Employers  of  several  large  stores  have  volun- 
tarily established  minimum  wage  scales  for  their  own  es- 
tablishments.^ Some  attempts  have  been  made  to  secure 
minimum  wage  standards  fixed  through  organizations  of 

9  The    writer    is    informed    that    the    following   firms    adopted    minimum    wage 
scales  during  the  years  1912  and  1913: 

Wm.    A.    Filene    Sons    Company,    Boston    $8.00 

Hannah  &  Lay  Mercantile  Company,  Traverse  City,  Michigan    7.00 

B.   H.   Gladding  Dry   Goods   Co.,   Providence,   R.    1 8.00 

Blakeley    Dry    Goods    Co.,    Spokane,    Wash 9.00 

Greenway     &    Hughes,    Wichita,     Kan 7.00 

Louis  Traxler  Company,  Dayton,   0 7.00 

Hager    and    Brother,    Lancaster,    Pa 6.50 

M.   T.   Garvin  &  Company,  Lancaster,   Pa 6.50 


no  ECONOMICS  OF  RETAILING 

salespeople  in  the  form  of  labor  or  trade  unions.  Lately, 
we  have  heard  much  in  this  country  of  the  establishment  b} 
law  of  minimum  wage  rates,  particularly  for  women  anc 
children. 

Besides  the  minimum  wage  scales  established  voluntarib 
by  retail  firms  for  their  own  employees,  there  has  been 
considerable  movement  among  retail  salesmen  to  establisl 
minimum  wage  scales  in  much  the  same  way  as  that  fol- 
lowed by  laborers  in  many  other  lines,  that  is  by  organiza- 
tion and  collective  bargaining.  As  far  back  as  1863,  there] 
was  organized  among  women  employed  in  stores  and  fac- 
tories a  society  known  as  the  "  Working  Women's  Pro- 
tective Union  "  whose  aim  it  was  to  raise  the  wages  of 
working  girls  and  women,  but  more  particularly  to  aid  mem- 
bers in  collecting  sums  due  them  from  employers.  During 
the  early  days  of  woman  labor  in  stores  and  factories  in  this 
country,  considerable  fraud  of  this  kind  was  practiced  and 
many  employees  were  beaten  out  of  their  wages. ^^ 

There  were  regular  unions  among  salespeople  and  for 
salespeople  exclusively  as  early  as  1882.  At  that  time  seven 
local  unions  were  drawn  into  the  big  general  organiza- 
tion known  as  the  Knights  of  Labor.  In  1890,  these  with- 
drew and  were  forthwith  united  with  the  American  Federa- 
tion of  Labor. 

These  pioneer  early  unions  of  salespeople  were  generally 
called  "  Early  Closing  Societies,"  their  main  object  being 
namecf  in  the  title.  When  joined  with  the  American  Federa- 
tion of  Labor,  the  name,  "  Retail  Clerks'  National  Protective 
Association,"  was  adopted,  which  was  later  changed  to  "  Re- 
tail Clerks'  International  Protective  Association."  ^^ 

The  objects  of  the  "  Retail  Clerks'  International  Pro- 
tective Association  "  as  expressed  in  its  preamble  are,  to 

10  Hyslop,  J.  H.,  "Shop  Girls  and  Their  Wages,"  Andover  Review,  16:455. 

11  Retail  Clerks'  International  Advocate,  September,  1906. 


It  the  wages  of  salespeople  III 

'improve  the  conditions  of  retail  clerks,  secure  reasonable 
compensation,  oppose  long  hours  and  Sunday  labor,  dissemi- 
nate useful  information  by  means  of  lectures,  pamphlets, 
and  other  literature,  demand  comfortable  seats  for  lady 
clerks,  and  equal  pay  for  equal  work,  oppose  child  labor  and 
to  provide  a  benefit  fund  for  sick,  aged,  and  indigent  retail 
clerks. 

In  1906  the  association  had  formulated  its  demands  to 
the  extent  of  requiring  stores  to  employ  only  union  em- 
ployees, to  observe  a  9  hour  working  day  and  a  52  hour 
week,  with  pay  at  one  and  one-half  times  the  regular  rate 
for  overtime,  varying  in  practice,  however,  to  suit  local  con- 
ditions, and  to  settle  by  arbitration  all  disputes  between  em- 
ployer and  employee. 

This  association  has  grown  so  that  it  now  has  locals  in 
nearly  every  important  city  in  the  country.  Since  1891,  it 
has  published  a  monthly  organ,  the  Retail  Clerks'  Inter- 
national Advocate.  It  has  employed  the  strike  and  boycott 
as  a  means  of  bringing  employers  to  terms;  but  on  the 
whole  it  has  not  been,  and  is  not  now,  apparently,  a  very 
strong  union. 

Considerable  outside  support  has  always  been  lent  to 
the  organization  of  retail  store  employees  for  the  purpose 
of  bettering  their  condition.  A  great  deal  of  work  was 
done  for  salespeople  before  they  were  organized,  and  in 
lines  where  organization  has  not  yet  been  effected,  such  as- 
sociations as  the  "  Women's  Educational  and  Industrial 
Union  "  of  Boston,  an  organization  of  the  same  name  in 
Buffalo,  and  the  "  Protective  Agency  for  Women  and  Chil- 
dren "  in  Chicago,  have  been  of  material  assistance.  Lately, 
the  "  Consumers'  League  "  and  the  "  Women's  Trade  Union 
League  "  have  interested  themselves  a  great  deal  in  better 
conditions  for  store  employees.  These  organizations  have 
even  gone  so  far  as  to  assist  materially  in  efforts  to  get  the 


112  ECONOMICS  OF  RETAILING 

salespeople  to  organize  into  unions,  and  to  encourage  sales-] 
women,  particularly,  to  make  demands  for  higher  wages, 
shorter  hours,  seats  back  of  the  counters,  and,  other  im- 
proved working  conditions. 

Unions  among  salespeople  are  not  unknown  in  other 
countries.  "The  National  Amalgamated  Union  of  Shop 
Assistants,  Warehousemen,  and  Clerks,"  "  The  Amalga- 
mated Union  of  Co-operative  Employees,"  and  the  "  Irish 
Drapers'  Assistants'  Benefit  and  Protective  Association " 
are  well  known  British  organizations  numbering  thousands 
of  members. 

A  third  form  of  minimum  wage,  and  the  one  most  com- 
monly thought  of  by  the  public  whenever  this  subject  is 
mentioned,  is  a  minimum  wage  fixed  by  legislative  act. 
Such  acts  were  passed  several  years  ago  in  Australia  and 
New  Zealand.  Victoria  enacted  a  minimum  wage  law  as 
early  as  1896,  New  Zealand  had  wage  boards  before,  but 
passed  a  wage  act  in  1905.  England  passed  a  comprehen- 
sive minimum  wage  act  in  1909.  In  this  country  between 
1912  and  1914  laws  upon  this  subject  were  passed  in  nine 
states,  namely,  Massachusetts,  California,  Colorado,  Minne- 
sota, Nebraska,  Oregon,  Utah,  Washington,  and  Wisconsin. 
Several  other  states  had  similar  measures  under  considera- 
tion in  1913,  and  it  seems  not  unlikely  that  several  other 
states  will  soon  pass  similar  acts.  The  purpose  of  the  mini- 
mum wage  law  in  this  country  is  ostensibly  to  protect  cer- 
tain classes  of  workers,  such  as  women  and  children,  who 
are  relatively  weak  in  bargaining  power.  It  has  been  felt 
that  circumstances  are  against  the  woman  and  child  em- 
ployee, and  that,  when  left  to  natural  market  operations, 
they  are  not  able  to  get  wages  high  enough  to  support  them- 
selves. The  arguments  usually  cited  for  a  legal  minimum 
wage  are  as  follows: 

1.  If  wages  are  lower  than  the  cost  of  living,  society 


f  THE  WAGES  OF  SALESPEOPLE  1 13 

must  make  up  the  difference  in  some  way  to  the  individual 
—  hence  why  not  directly  through  the  wage  ? 

2.  Less  than  a  Hving  wage  causes  deterioration  of  the 
individual,  and  to  that  extent,  of  society.  Poorly  fed, 
poorly  clothed,  and  poorly  housed  individuals  make  poor 
citizens. 

3.  A  better  wage  means  greater  efficiency  and,  to  a  cer- 
tain extent,  at  least,  a  better  and  bigger  product. 

4.  The  strain  of  living  from  hand  to  mouth  is  removed 
from  the  wage-earner,  and  he  or  she  becomes  more  con- 
tented, more  happy,  and,  therefore,  more  efficient. 

5.  A  minimum  wage  eliminates  cut-throat  competition 
among  business  competitors.  It  gives  to  each  more  equal 
opportunity  since  each  must  pay  the  same  minimum  wages. 

6.  Parasitism  will  be  eliminated.  It  is  claimed  by  some 
that  retailing  does  not  bear  its  own  burden  of  expense,  that 
it  must  have  cheap  labor  in  order  that  goods  may  be  sold 
to  the  consumers  as  cheaply  as  at  present.  Raising  the 
wages  will,  therefore,  raise  prices.  Retailing  will  not  then 
be  in  a  position  of  drawing  help,  in  the  form  of  underpaid 
labor,  that  must  be  supported  by  other  classes  of  society. 

7.  Finally,  women  and  children,  it  is  claimed,  are  not 
able  to  bargain  on  equal  terms  with  their  employers  for  a 
living  wage,  and,  consequently,  employers  sometimes  take 
advantage  of  their  weakness  and  pay  them  less  than  their 
services  would  bring  if  properly  marketed. 

Merchants  who  favor  a  minimum  wage  go  further  and 
point  out  that,  as  a  matter  of  expediency,  no  merchant  try- 
ing to  do  a  legitimate  retail  business  should  oppose  it.  The 
tendency  of  the  public  thought  at  the  present  time  seems  to 
be  towards  a  minimum  wage.  To  oppose  this  thought  is  to 
antagonize  the  public  upon  whose  support  the  retail  store  de- 
pends directly  for  existence.  Merchants  favoring  the  plan 
also  hold  that  the  increase  in  wages  will  result  in  a  selection 


114  ECONOMICS  OF  RETAILING 

of  employees  with  better  care,  and  that  the  unemployment 
of  the  younger  and  inexperienced  classes  will  force  the  pub- 
lic to  establish  systems  of  education  to  fit  them  for  the  mini- 
mum wage.  In  the  long  run  it  is  felt  that  any  increases 
made  necessary  in  retail  expenses  because  of  higher  wages 
can  and  will  be  shifted  to  the  consumer. 

The  arguments  commonly  heard  against  the  minimum 
wage  are  as  follows: 

1.  The  inefficient  will  not  be  hired  at  all  if  a  wage  higher 
than  they  can  earn  must  be  paid.  Thus  many  people  will 
be  deprived  of  earning  anything,  or  contributing  anything  to 
the  support  of  their  families. 

2.  The  inducement  to  do  better  work  and  to  enter  higher 
classes  of  employment  will  be  lessened.  It  is  felt  that  em- 
ployees will  simply  lean  back  on  the  minimum  wage  and 
wait  for  the  state  to  boost  that  payment  rather  than  work 
individually  for  better  things. 

3.  Stores  depending  for  business  drawn  from  near  the 
boundary  lines  of  states  and  located  in  a  state  where  a  mini- 
mum wage  law  is  put  into  force  will  be  hurt  if  minimum 
wage  laws  are  not  also  put  into  effect  in  the  near-by  states. 
In  other  words,  stores  so  located  will  lose  business  to  stores 
across  the  line  in  other  states. 

4.  The  minimum  wage  will  tend  to  become  a  maximum. 

5.  "If  the  state  fixes  a  minimum  wage,  it  is  logically 
bound  1?o  furnish  employment  at  that  wage." 

There  seems  to  be  no  question  that  as  long  as  there  are 
plenty  of  prospective  salespeople  to  select  from,  the  more 
inefficient  will  lose  their  positions  under  a  minimum  wage 
law,  if  their  present  wages  are  not  equal  to  the  minimum 
proposed.  But  a  reasonable  administration  of  a  minimum 
wage  law  —  a  law  that  permits  reasonable  exceptions,  under 
carefully  worked  out  restrictions  —  will  provide  special 
classifications  for  such  employees.     One  of  the  results  that 


THE  WAGES  OF  SALESPEOPLE  1 15 

seems  certain  is  that  the  pubHc  will  then  have  its  attention 
called  to  the  necessity  of  adopting  some  form  of  specific 
education  for  the  work  of  retail  selling.  This  would,  in 
the  long  run,  be  a  most  desirable  thing,  not  only  for  the 
salespeople  themselves  but  also  for  the  retailers  and  the 
public. 

That  a  minimum  wage  will  reduce  initiative  and  ambi- 
tion and  that  the  minimum  will  tend  to  become  the  maxi- 
mum are  arguments  that  have  been  used  against  all  mini- 
mums  of  wages  set  by  trade  unions  for  years.  These  argu- 
ments have  never  been  clearly  proved  for  any  trade,  and  in 
a  business  like  selling  where  personality  counts  for  so  much, 
and  where  the  means  for  measuring  efficiency  are  so  easy,  it 
will  be  much  harder  to  prove  it  than  for  most  other  lines  of 
work. 

It  does  not  appear  clear  that  the  state  must  furnish  em- 
ployment if  it  sets  a  minimum  wage,  any  more  than  that 
it  should  engage  in  making  pure  food  or  drugs  simply  be- 
cause it  passes  a  pure  food  and  drug  act,  or  that  it  must  run 
steam  engines  simply  because  it  fixes  certain  requirements 
for  their  operation.  The  view  represented  by  this  argument 
against  the  minimum  wage  results  from  confusing  the  func- 
tion of  the  state  as  a  regulative  body,  and  from  not  distin- 
guishing the  necessity  for  rules  in  the  conduct  of  business 
—  as  well  as  in  any  other  social  activity  —  with  a  partici- 
pation in  business  itself.  The  state  exists  for  the  purpose 
of  protecting  the  rights  of  all,  and  in  the  performance  of 
this  function  it  must  make  rules  and  enforce  them.  Some 
rules  may  be  made  unwisely,  some  regulation  may  be  unjust 
or  unnecessary,  but  such  errors  do  not  constitute  an  argu- 
ment against  the  principle  of  regulation. 

In  conclusion,  the  standards  for  both  the  wages  and  effi- 
ciency of  retail  salespeople  seem  to  be  tending  upwards. 
Both  are  too  low  at  the  present  time,  but  even  under  the 


Il6  ECONOMICS  OF  RETAILING 

present  wage  standards,  based  on  the  usual  percentages  for 
salaries  on  sales,  the  more  efficient  are  able  to  make  fairly 
good  wages.  This  suggests  the  possibilities  of  a  practical 
education  for  salespeople;  taking  young  people  who  have 
been  sufficiently  prepared  in  the  regular  courses  of  the 
schools,  and  giving  them  a  training  directly  for  the  retail 
business.  No  good  reason  has  been  presented  why  this  sort 
of  training  should  not  be  given  through  the  public  school 
system,  even  as  training  is  given  in  agriculture,  domestic 
science,  and  the  many  mechanical  trades  that  have  been  in- 
troduced. It  is  to  be  presumed  that  such  educational  work 
will  be  established  in  the  public  school  systems,  and  it  prom- 
ises to  be  the  next  great  step,  both  in  the  field  of  vocational 
education,  and  in  the  development  of  more  efficient  retail- 
ing. The  new  ability  that  such  educational  work  would 
give  to  salespeople  would  make  them  earners  of  higher 
wages  at  present  rates,  but  it  is  entirely  likely  that  with 
the  increased  understanding  of  their  business  and  its  func- 
tions involved  in  such  an  education,  the  army  of  workers 
in  the  retail  field  would  gradually  force  a  somewhat  higher 
wage  standard,  whether  minimum  wage  standards  were 
adopted  by  law  or  not.  In  any  business  there  should  be  no 
question  as  to  whether  or  not  it  supports  itself  and  pays  its 
own  expenses.  With  an  educated  sales  force  performing 
well  its  work  for  the  public,  and  fully  realizing  the  respon- 
sibility**and  importance  to  the  public  of  this  work,  the  retail 
business  will  be  able  to  take  its  place  among  the  most  hon- 
ored and  best  paid  professions. 

Bibliography  ^ 

Wage-Earning  Women  in  Stores  and  Factories,  Vol.  V.  In  Report  of 
Conditions  of  Woman  and  Child  Wage-Earners  in  the  United 
States,  1910.    61st  Congress,  2d  Session,  Document  No.  645. 

Wages  of  Women  in  Retail  Stores.  In  Report  of  the  Massachusetts 
Commission  on  Minimum  Wage  Boards,  1913,  pp.  88-143. 


THE  WAGES  OF  SALESPEOPLE 


117 


Neighborhood  Department  Stores  in  Chicago.  U.  S.  Bureau  o£  Labor, 
Bulletin  No.  91. 

Report  of  the  National  Civic  Federation  on  Conditions  in  Department 
Stores,  1913.  Published  in  the  Federation  Review.  Reviewed  by 
Nation,  July  31,  1913. 

Van  Kleeck,  M.  Working  Conditions  in  New  York  Department 
Stores.  Survey,  31 :50-51.  Criticism  of  the  report  of  the  National 
Civic  Federation. 

Butler,  E.  B.    Saleswomen  in  Mercantile  Stores.    Baltimore,  1909. 

MacLean,  Annie  M.  Two  Weeks  in  Department  Stores.  American 
Journal  of  Sociology,  4:721. 

Dry  Goods  Economist,  New  York,  published  a  number  of  articles  bear- 
ing on  the  minimum  wage  during  1913  and  1914.  Both  sides  of  the 
question  are  presented  from  the  standpoint  of  retailers.  The  April 
3,  1915,  number  contained  a  valuable  summary,  "  Salary  and  Bonus 
Systems  for  Salespeople." 

Pigou,  A.  C.  Principle  of  the  Minimum  Wage.  19th  Century,  73: 
644-58. 

Clark,  J.  B.     Minimum  Wage.    Atlantic  Monthly,  112:289-97. 

Webb,  S.  Economic  Theory  of  a  Legal  Minimum  Wage.  Journal  of 
Political  Economy,  20:973-98. 

Minis,  H.  A.  Some  Aspects  of  the  Minimum  Wage.  Journal  of 
Political  Economy,  22 :132-59. 

Kelley,  Florence.  Minimum  Wage  Boards.  Proceedings  of  the  Na- 
tional Conference  of  Charities  and   Corrections,   Cleveland,   1912. 

Perils  of  the  Minimum  Wage,  Century,  84 :311-3. 

Ryan,  J.     Living  Wage.    Survey,  27:1623-4. 


I 


CHAPTER  VIII 

LOCATION  AND  RENT  IN  THE  RETAIL 
BUSINESS 

The  Principles  of  Rent  Applicable  to  Retail  Store 

Locations 

Some  unknownperson  has  said,  "  If  a  man  makes  even 
a  mouse  trap  better  than  anyone  else,  though  he  build  his 
hut  in  the  woods,  the  world  will  make  a  beaten  track  to  his 
door."  Although  widely  quoted  and  having  the  ring  of 
wisdom,  as  a  maxim  of  practice  the  saying  has  no  value. 
There  is  now  scarcely  an  article  of  commerce  so  necessary, 
or  so  fine  in  quality,  as  to  tempt  the  masses  of  buyers  a  sin- 
gle step  from  the  regular  channels  of  trade  without  a  good 
deal  of  coaxing.  The  maker  of  the  ''  better  mouse  trap  " 
would  find  it  much  more  to  his  profit  to  ''  build  his  hut  "  by 
the  traveled  wayside  and  supplement  the  advantages  of  his 
location  with  an  attractive  window  display. 

In  no  branch  of  business  is  location  more  important  than 
in  retailing.  The  oldest  books  on  trade,  as  well  as  the  most 
recent  literature,  emphasize  this  point.  Shopkeepers  and 
traders  have  always  congregated  in  certain  locations  in  popu- 
lous communities.  Where  legal  ordinances  have  not  inter- 
fered, it  is  likely  that  these  locations  have  always  been  the 
points  at  which  the  greatest  possible  amount  of  retail  busi- 
ness could  be  transacted,  (^try  merchant  of  experience 
know5  something  of  the  comparative  value  of  retail  sites. 
TM  buyer  of  a  store  considers  the  value  of  the  location  first 
of  all.     The  credit  manager  of  the  wholesale  house  inquires 

n8 


LOCATION  AND  RENT  II9 

concerning  the  location  of  the  store  whose  owner  seeks  his 
department's  O.K.  Failure  statistics  show  that  many  bank- 
ruptcies are  due  directly  to  poor  location.  If  figures  could 
be  given  showing  the  number  of  cases  in  which  a  bad  loca- 
tion was  a  contributing  cause  to  failure,  there  is  no  doubt 
but  that  it  would  rank  extremely  high.  Any  study  of  retail- 
^Jng  must  take  location  into  consideration. 

Rent  is  the  payment  that  the  retailer  makes  for  his  loca- 
tion and  for  the  use  of  the  buildings  and  improvements 
there  may  be  thereon.  It  matters  not  if  he  own  his  store 
and  the  land  that  it  is  built  upon,  for  in  this  case  the  rent  that 
he  would  otherwise  pay  to  another  person  simply  goes  to 
himself. 

Rent,  as  the  term  is  generally  used,  is  made  up  of  two 
parts  —  building  rent  and  ground  rent.  Building  rent  com- 
monly covers  a  number  of  items  such  as  upkeep  or  deprecia- 
tion charges,  taxes  on  the  building  and  improvements,  in-  \ 
surance,  and  real  estate  brokers'  or  rental  agencies  commis- 
sions, together  with  any  other  charges  paid  by  the  landlord 
for  the  tenant,  such  as  janitor's  services,  water,  light,  heat, 
power,  and  elevator  service.  What  remains  of  the  building 
rent  after  these  charges  have  been  paid  is  generally  looked 
upon  as  the  interest  or  return  upon  the  money  invested  in 
putting  up  the  building  and  making  the  improvements. 
Rarely  is  it  more  than  the  average  interest  rate  on  funds 
offered  in  the  open  markets.  Ground  rent  is  the  payment 
made  by  a  retailer  for  the  space  his  store  stands  on.  But 
the  value  of  this  space  depends  almost  entirely  upon  its  loca- 
tion. Hence  it  is  virtually  true  that  ground  rent  is  the 
retailer's  payment  for  location. 

The  distinction  between  building  rent  and  ground  rent 
is  recognized  by  many  business  men  in  their  accounts  and 
records.  In  England  it  has  long  been  customary,  especially 
in  the  larger  cities,  for  landlords  to  lease  unimproved  city 


120  ECONOMICS  OF  RETAILING 

lands  for  long  periods  to  merchants  and  others  who  put  uj 

.'their  own  buildings,  but  who  pay  rent  for  the  use  of  the  landj 

/  This  custom  seems  to  be  on  the  increase  in  the  larger  cities 

of  this  country.     In  these  cases  the  distinction  is  kept  clej 

in  practice.     Some  states  and  municipalities  require  separate 

assessment  of  land  and  improvements  for  purposes  of  taxa- 

\  tion.     Tax  reformers  of  the  Henry  George  type  accept  this 

i  division  as  fundamental.     Courts  frequently  cause  land  and 

\  improvements  to  be  valued  separately  in  condemnation  pro- 

ceedings. 

Clear  thinking  demands  that  the  same  distinction  should 
be  made  in  any  discussion  of  retail  rents.  It  is  unfortunate, 
however,  that  nearly  all  statistics  that  are  available,  such 
as  figures  drawn  from  retailers'  accounts  on  the  costs  of  do- 
ing business,  lump  building  rent  and  ground  rent  together. 
What  part  should  be  assigned  to  each  is  impossible  to  tell. 
There  is  a  rule  among  some  real  estate  men  that  may  serve 
as  a  guide  to  a  rough  approximation.  This  rule  is  that 
the  amount  invested  in  buildings  and  other  improvements 
for  retail  purposes  should  be  about  equal  to  the  value  of  the 
ground.^  Since  the  ground  value  is  normally  the  capital- 
ized value  of  the  rental,  the  returns  to  the  ground  and  its 
improvements,  at  least  while  the  latter  are  new,  will  be  about 
equal.  For  example,  if  the  net  rental  of  a  certain  retail 
store  amounts  to  2  per  cent  of  the  sales,  one  may  roughly 
estimate  that  1  per  cent  goes  to  the  buildings  and  improve- 
ments and  the  other  1  per  cent  to  the  ground.  This  rule  is 
only  an  approximation  and  plenty  of  exceptions  may  be 
found.  It  is  representative  of  the  average  rather  than  the 
actual  in  any  particular  case. 

The  amount  of  rent  paid  for  the  location  depends  upon 
its  comparative  desirability.  In  a  town  where  all  locations 
are  equally  good  for  retail  store  purposes,  and  where  there 

iHurd:    "Principles   of   City   Land   Values." 


LOCATION  AND  RENT  12 1 

are  more  locations  offered  than  can  be  used,  the  rent  for  any 
one  location  will  naturally  be  low,  probably  not  more  than 
would  be  paid  for  similar  property  used  for  residence  pur- 
poses. Such  a  condition  is  rarely  the  case,  however,  except 
in  small  country  villages  having  no  special  features  causing 
a  concentration  of  the  retail  business  at  any  given  point. 
Where  there  exists  a  considerable  difference  in  desirability, 
and  where  there  is  competition  for  the  more  desirable  loca- 
tions, the  rents  will  tend  to  vary  with  the  desirability.  The 
more  desirable  the  location  is,  the  higher  its  rent  will  be. 
In  other  words,  ground  rent,  in  the  retail  business,  is  paid 
for  comparative  advantages  in  location. 

To  illustrate,  let  us  assume  that  a  merchant  has  under 
consideration  two  locations,  one  in  which  he  can  make  sales 
amounting  to  $24,000  a  year,  and  the  other  in  which  he 
can  make  sales  amounting  to  $30,000  a  year  on  the  same 
capital  investment.  Eliminating  all  other  possible  differ- 
ences between  the  two  locations,  let  us  assume  that  the  sales 
in  both  cases  will  yield  a  gross  profit  or  margin  of  33% 
per  cent  and  that  the  expenses  in  each  case,  excepting  the 
rent  item,  amount  to  23  per  cent  of  the  sales.  The  net 
margin  to  cover  rent  and  net  profits  would  thus  be  10% 
per  cent  in  each  case,  or  $2,480  for  the  first  location  and 
$3,100  for  the  second.  If  both  locations  could  be  procured 
at  the  same  rent,  say  $40  a  month,  or  $480  a  year,  the  dif- 
ference in  favor  of  the  second  location  becomes  evident, 
amounting  to  $620. 

But  the  owner  of  the  second  location,  if  he  knows  the 
value  of  his  property,  will  want  more  than  $480  per  year. 
He  may  say  to  the  merchant,  "  My  location  will  bring 
you  an  increase  of  $6,000,  or  25  per  cent  more  business  than 
the  other  one.  I  must,  therefore,  have  25  per  cent  more 
rent  for  my  location.  Instead  of  $480,  I  must  have  $600 
per  year."     Reducing  these  figures  to  percentages  of  the 


122  ECONOMICS  OF  RETAILING 

sales  in  each  case,  it  will  be  seen  that  $480  is  2  per  cent 
of  the  sales  at  the  first  location,  and  that  $600  is  2  per  cent 
of  the  sales  at  the  second  location.  In  other  words,  in  rais- 
ing the  rent  of  the  second  location  from  $480  to  $600  per 
year,  the  landlord  is  only  keeping  his  rent  in  the  same  pro- 
portion to  sales  as  exists  for  the  first  location.  It  is  prac- 
tically certain  that  under  the  circumstances  the  landlord 
would  be  able  to  get  at  least  this  amount  of  rent. 

But  the  merchant  tenant  will  still  find  the  second  location 
more  desirable  than  the  first.  The  gross  margin  in  each 
case,  it  will  be  recalled,  is  33%  per  cent  and  the  expenses  of 
doing  business  amount  to  23  per  cent  plus  2  per  cent  for 
rent,  or  25  per  cent  of  sales.  This  leaves  a  margin  of  8% 
per  cent  net  profit  in  each  case.  Now  8%  per  cent  of 
$30,000,  or  $2,500,  is  $500  more  than  81/3  per  cent  of 
$24,000,  or  $2,000.  Thus  $500  is  still  the  measure  of 
desirability  in  favor  of  the  second  location. 

In  the  bargaining  process  between  the  merchant  and  his 
landlord,  especially  if  there  are  other  merchants  competing 
for  the  same  location,  the  $500  surplus  just  indicated  will 
be  an  object  of  serious  interest.  Some  one  of  the  mer- 
chants is  likely  to  offer  more  than  $600  a  year  for  the 
location,  thus  virtually  offering  to  divide  this  $500  surplus 
profit  with  the  landlord.  In  the  competitive  bidding  that 
we  are  assuming  to  follow,  the  landlord  finally  closes  with 
the  merchant  who  offers  to  give  him  the  greatest  portion 
of  it. 

Under  most  circumstances,  the  landlord  will  not  be  able 
tb  get  all  of  it,  although  that  outcome  is  not  impossible. 

/As  the  rent  is  fixed  at  a  higher  and  higher  figure,  the  in- 
terest of  the  merchants  begins  to  wane,  certainly  while  lo- 
cations of  the  first  kii3id  yielding  net  profits  of  $2,000  per 

\year  are  available.  It  is  the  surplus  above  $2,000  that  at- 
tracts their  bidding.     If  no  surplus  is  possible,  the  mer- 


LOCATION  AND  RENT  1 23 

chants  will  stick  to  the  other  locations.  The  landlord  may 
possibly  get  $300,  thus  leaving  $200  for  the  tenant.  In 
this  case  the  total  rent  would  be  $900  a  year,  or,  under  the 
assumption,  3  per  cent  of  the  sales.  Thus  on  passing  from 
poorer  to  better  retail  locations  the  proportion  of  rent  to 
sales  tends  to  increase. 

There  is  another  reason  why  rents  tend  to  be  higher, 
not  only  absolutely,  but  also  relatively  to  sales  for  the  bet- 
ter locations.  The  competition  among  the  retail  store  man- 
agers of  a  town  is  generally  very  keen  for  these  locations, 
and  the  best  locations  naturally  go  to  the  highest  bidders. 
While  mistakes  often  result  from  such  competitive  bidding 
and  store  managers  sometimes  find  themselves  unable  to 
pay  the  high  rents  agreed  upon  and  succeed;  still,  in  the 
long  run,  the  highest  bidder  is  likely  to  be  the  one  who  can 
make  the  most  out  of  the  property.  There  are  probably  as 
great  differences  in  the  managerial  ability  of  merchants 
as  there  are  differences  in  desirability  of  locations.  The 
most  efficient  manager  is  the  one  who  can  make  a  location 
yield  the  greatest  amount  of  profit.  Hence  the  most  ef- 
ficient manager,  other  things  being  equal,  is  the  one  who  is 
able  to  bid  the  most  for  the  location. 

In  thus  bidding  against  each  other  for  good  locations, 
store  managers  are  likely  to  give  to  the  landlord  a  share  of 
the  total  product  which  might  properly  be  attributed  to  the 
superior  efficiency  of  the  manager. 

Take  the  case  of  the  second  location  referred  to  in  the 
illustration  used.  It  was  assumed  that  the  merchant  could 
make  a  gross  profit  of  33%  per  cent  and  a  net  profit  of 
8%  per  cent  on  his  sales.  Now,  let  a  more  efficient  manager 
appear,  one  able  to  cut  the  selling  expense  from  25  per 
cent  to  20  per  cent  of  sales,  or  one  able  to  buy  the  same  goods 
at  from  5  to  10  per  cent  lower  prices,  or  one  able  to  in- 
crease the  amount  of  the  sales,  and  it  becomes  evident,  other 


124  ECONOMICS  OF  RETAILING 

things  remaining  the  same,  that  such  a  manager  will  be  abU 
to  clear  more  than  Sy^  per  cent  profit  on  his  sales.  Now] 
if  the  number  of  locations  where  such  efficiency  can  b< 
exercised  is  limited,  and  if  two  or  more  store  managers  oj 
unusual  ability  should  be  found  in  competition  for  the  sam< 
location,  it  is  almost  certain  that  the  landlord  will  be  ableJ 
to  get  as  rent  more  than  2  per  cent  of  the  sales,  the  amount] 
'received  by  the  owner  of  the  poorer  location. 

Suppose  three  merchants,  Smith,  Brown,  and  Jones,  to 
be  in  competition  for  the  place.  Let  us  assume  that  Smith 
is  a  manager  of  good  average  ability  and  that,  therefore,  he 
is  able  to  clear  $2,500  annually  on  the  location,  when  the 
rent  is  $600  per  year.  Brown  is  a  more  skilful  manager 
and  is  able  to  make  $2,800  annually  after  paying  the  rent.i 
Jones,  let  us  say,  is  the  most  efficient  of  the  three.  He  is 
able  to  make  $3,000  a  year  in  the  desired  location.  Smith 
feels  that  he  cannot  afford  to  pay  more  than  $600  per  year 
for  rent,  and  makes  that  as  his  bid  for  the  place.  Both 
Brown  and  Jones  are  willing  to  pay  more  if  necessary. 
Since  all  three  desire  the  place,  the  bids  of  Brown  and  Jones 
soon  pass  the  $600  mark  and  Smith  drops  out.  Brown  con- 
tinues his  bidding  up  to  $900  a  year  for  the  place.  At  this 
point  he  finds  that  it  will  be  unprofitable  for  him  to  go 
further,  that  other  locations  offer  equal  opportunities  for 
him.*  Jones,  the  most  efficient  of  the  three,  makes  his  bid 
just  a  trifle  higher,  say  $901,  and  then  Brown  drops  out. 
The  outcome  is  that  the  landlord  receives  $301  more  rent 
than  he  would  have  received  if  none  other  than  merchants  of 
average  ability,  such  as  Smith,  had  offered  to  take  the 
place.  Through  Jones'  superior  talents  as  a  store  manager 
the  location  is  made  to  yield  $500  more  than  Smith  or  any 
other  average  merchant  could  have  obtained  from  it.  Be- 
cause of  the  competition  of  other  efficient  men  like  Brown, 


LOCATION  AND  RENT  125 

the  landlord  is  able  to  collect  $301  out  of  that  $500,  leaving 
$199  to  Jones. 

It  thus  seems  that  the  business  system  is  so  contrived  as 
to  deprive  the  most  efficient  men  of  at  least  a  part  of  the 
special  product  of  their  efficiency,  and  that  this  product  is 
absorbed  in  the  rent  for  location.  To  this  the  land-own- 
ing class  would  reply  that  the  additional  product  is  as  much 
the  result  of  the  good  location  as  of  the  superior  man,  and 
that  the  superior  man  would  never  have  been  able  to  demon- 
strate his  special  talents  were  it  not  for  the  superior  loca- 
tion. As  to  the  merits  of  this  controversy,  we  need  give 
no  attention  here,  except  to  point  out  that  product  is  every- 
where the  result  of  the  economic  combination  of  three 
things,  land,  labor,  and  capital,  and  that  since  all  three  are 
absolutely  essential,  it  is  a  most  difficult,  if  not  impossible, 
task  to  assign  any  exact  measure  to  the  contributions  of 
each,  or  to  estimate  definitely  the  exact  product  specifically 
attributable  to  each. 

The  method  proposed  by  most  economists  in  their  analy- 
ses of  production,  and  followed  largely  in  business  practice, 
in  determining  the  share  of  each  factor,  is  to  take  for  con- 
sideration a  going  concern  using  fairly  well  proportioned 
amounts  of  labor,  capital,  and  land.  The  total  product  of 
the  concern  is  first  determined  for  a  definite  period  of  time. 
Next,  a  unit  of  one  or  another  of  the  factors  is  added  to  the 
concern,  say  another  average  laborer,  another  $100  in  capital 
in  the  form  of  fixtures,  or  in  stock,  or  in  any  other  form,  or  a 
few  more  feet  of  land  if  that  be  possible.  Presumably  there 
will  be  an  increase  in  the  total  product  of  the  concern.  This 
increase  is  credited  to  the  new  unit  added,  and  is  said  to  be 
the  product  attributable  to  that  unit.  It  is  assumed  that  this 
unit  of  land,  labor,  or  capital  is  like  any  other  unit  of  land, 
labor,  or  capital  already  used  by  the  concern,  since  it  may  be 


126  ECONOMICS  OF  RETAILING 

exchanged  for,  or  put  in  the  place  of,  any  other  unit. 
Hence  the  product  of  any  unit  of  capital  already  used  by 
the  concern  is  assumed  reasonably  to  be  the  same  as  that  of 
the  unit  of  capital  last  added,  or  the  product  of  any  laborer 
already  employed  is  assumed  to  be  the  same  as  that  of  the 
laborer  last  added.  Multiplying  the  number  of  units  of  any 
factor  by  the  product  thus  found  for  one  unit,  the  product 
is  taken  as  the  part  of  the  total  product  caused  by  that  factor. 
Thus  the  product  of  all  the  labor  employed  is  equal  to  the 
product  of  the  last  man  employed  multiplied  by  the  number 
of  laborers.  In  the  same  way  the  products  for  capital  and 
land  are  found. 

The  only  trouble  with  this  theory  is  that  the  total 
products  found  as  above  are  not  at  all  likely  to  be  equal  to 
the  total  product  of  the  going  concern.  In  the  case  of  all 
successful  concerns,  the  total  product  will  be  greater  than 
the  sum  of  the  products  of  the  three  factors  taken  separately. 
How  this  surplus  is  treated  we  shall  soon  see. 

In  the  division  of  the  product,  or  the  proceeds  of  the 
product,  each  factor  tends  to  get  as  its  remuneration  the 
part  or  share  determined  as  above.  For  example,  the  market 
rate  of  labor  tends  to  equal  the  value  of  that  amount  of 
product  which  one  laborer  can  add  to  the  total  product  of 
the  concern.  The  interest  rate  for  capital  tends  to  equal 
the  vahie  of  that  amount  of  product  which  one  unit  of  cap- 
ital, say  $100,  can  add,  if  put  to  use  in  the  concern.  It  is 
a  little  harder  to  illustrate  the  principle  with  land,  as  used 
for  retail  purposes,  although  the  principle  is  just  as  ef- 
fective. We  may  say,  theoretically,  that  the  rent- per  front 
foot  tends  to  equal  the  value  of  that  amount  of  product 
which  one  unit  of  land,  say  one  front  foot  a  hundred  feet 
deep,  can  add  if  put  to  use  by  the  concern. 

This  method  of  determining  the  productivity  of  each 
factor  has  practical  advantages  for  the  manager  of  the  busi- 


LOCATION  AND  RENT  1 27 

ness.  By  such  measurements  the  manager  can  tell  whether 
his  pay  roll  is  high  or  low,  whether  his  outgo  for  interest 
is  high  or  low,  and  whether  his  rent  is  proportional  to  market 
rates  or  not. 

In  actual  practice,  the  average  business  man  has  but  lit- 
tle to  say  about  what  the  market  rates  for  wages,  interest, 
and  rents  shall  be,  but  taking  the  market  rates  as  they  are, 
the  business  man  combines  land,  labor,  and  capital  in  such 
proportions  as  will  yield  him  the  greatest  return.  If  the 
market  rate  for  land  is  high,  it  may  pay  him  to  invest  in 
building  an  upper  story.  If  land  is  low,  he  may  expend 
capital  in  building  his  store  over  more  ground  space.  If 
labor  is  high,  he  may  employ  less  of  it  in  the  store,  by  in- 
stalling automatic  machines  of  various  kinds,  open  display 
fixtures,  arrangements  whereby  goods  sell  themselves,  and 
so  on.  If  capital  or  money  is  relatively  high  in  interest, 
he  may  economize  in  fixtures  and  equipment,  and  use  more 
labor  instead.  Thus  the  business  man  takes  on  more  labor, 
or  more  capital,  or  more  land  as  long  as  he  can  make  some- 
thing over  the  amount  that  he  must  pay  out  for  its  use. 
He  will  stop  adding  units  of  any  factor  as  soon  as  the  product 
no  more  than  equals  the  outlay. 

The  surplus  that  remains  after  wages,  interest,  and  rent 
have  been  paid,  is  considered  the  profits  of  the  concern.  By 
some  economists  it  is  further  classified  as  the  wages  or  the 
profits  of  good  management,  and  pure  or  chance  profit. 

Referring  back  to  the  statement  concerning  the  tendency 
of  the  more  able  merchants  or  store  managers  to  compete 
keenly  for  the  best  locations,  an  interesting  sidelight  on 
the  retail  business  is  revealed,  namely,  that  the  best  or  most 
efficient  store  managers  tend  to  get  the  best  locations  in  the 
long  run.  The  highest  bidder  gets  the  place.  Normally, 
however,  the  highest  bidder  is  the  one  who  can  make  the 
most  out  of  the  location ;  hence  the  highest  bidder  is  in  such 


128  ECONOMICS  OF  RETAILING 


ts 

1 


a  case  the  most  efficient  store  manager.  Mistakes  are  fre- 
quently made  in  bidding  for  locations,  however,  and  many 
men  fail  to  make  good  under  the  burden  of  the  rent  and 
other  expense  assumed  in  the  better  locations.  Only  here 
and  there  is  there  a  manager  who  can  meet  the  high  rents 
and  earn  a  good  profit  besides.  Under  the  present  order  o 
business,  this  is  the  only  visible,  practical  measure  of  e 
ficiency.     Thus  the  sifting  process  goes  sternly  on. 

So  far,  we  have  compared  locations  of  different  degre 
of  desirability.  It  is  evident  that  a  location  may  change  in 
desirability  with  the  passing  of  time;  hence  we  may  com- 
pare the  relation  of  the  rent  to  the  earning  power  of  the 
same  location  at  different  times.  One  of  the  most  common 
explanations  for  the  rise  in  the  costs  of  doing  a  retail 
business  during  the  last  fifteen  years  is  that  rents  have 
gone  pp.  In  support  of  this  view  one  writer  ^  gives  figures 
from  a  small  department  store  in  a  town  of  about  25,000 
population  which  show  that  rent  equalled  1.9  per  cent  of 
the  sales  in  1883,  and  3.2  per  cent  of  sales  in  1913.  An- 
other writer  ^  states  that  the  average  rental  for  shoe  stores 
has  gone  up  from  1.86  per  cent  of  sales  to  2.6  per  cent  in 
the  last  fifteen  years.  Another  report  indicates  that  retail 
rents  in  Massachusetts  were  from  30  to  40  per  cent  higher 
in  19^0  than  they  were  in  1897;  and  that  wholesale  store 
rents  had  gone  up  from  10  per  cent  to  15  per  cent  of  sales 
in  the  same  time.*  Similar  observations  were  made  by  the 
U.  S.  Bureau  of  Labor.^  Note  that  these  increases  are  pro- 
portional to  sales,  that  is,  rents  have  increased  faster  than 
sales. 

ifrwo  sets  of  causes  are  clearly  discernible,  both  of  which 
mult  be  taken  into  account  in  explaining  these  increases 

2  Wheeler  Sammons,  "  Keeping  Ahead  of  Rising  Costs,"  System,  Dec.  13,  1914. 

8  Flint  Garrison,  in  the  Drygoodsman,  Nov.  16,  1912. 

4  Report  of  the  Mass.   Cost  of  Living  Comm.,  pp.   138-9, 

B  Bulletin  of  the  U.   S.   Lab.   Statistics,  No.   130,  p.   63. 


LOCATION  AND  RENT  129 

in  rent.  In  the  first  place,  part  of  the  increase  is  due,  not 
to  increase  in  ground  rent,  but  to  building  rent.  Cost  of 
building  construction  is  much  higher  now  than  it  was  fifteen 
or  more  years  ago.  Such  increases  in  cost  must  be  met  in 
the  investment  and  must  be  covered  by  a  higher  return. 
Better  store  buildings,  fixtures,  fronts,  windows,  and  so  on, 
are  required  today  than  ever  before.  But  these  improve- 
ments have  meant  additional  outlays  that  must  be  com- 
pensated for  by  the  merchant-tenant  who  uses  the  store. 
These  items,  interest  and  upkeep  on  a  higher  investment, due 
to  higher  building  costs,  and  interest  and  upkeep  on  a  more 
expensive  equipment,  certainly  account  for  a  large  part  of 
the  increase  in  total  rent  noted  by  business  men  every- 
where. 

Another  explanation  for  the  increase  in  retail  rents  dur- 
ing the  last  fifteen  years  is  that  the  ground  rents  have  been 
rising.  In  the  period  previous  to  this,  many  towns  came 
into  existence  in  this  country  and  small  towns  have  grown 
into  large  towns.  In  general,  a  large  part  of  the  country, 
in  this  period  of  time,  emerged  from  frontier  conditions. 
Locations  that  were  comparatively  new  have  become  old. 
But  a  retail  location  used  continuously,  especially  if  man- 
aged in  a  way  satisfactory  to  the  public,  naturally  draws 
an  increasing  trade.  As  the  trade  increases,  the  location 
is  said  to  improve.  This  improvement  may  be  due  to  the 
active  business  methods  of  the  store  manager,  but  whatever 
of  such  "  good- will  "  remains  permanently  inheres  in  the 
location  and  not  in  the  manager.  There  is  an  old  law  among 
dealers  that  "  steady  improvements  in  a  retail  business  fol- 
low the  stand  and  not  the  man."  A  merchant  may  sell  out 
and  move  across  the  street,  but  many  of  his  customers  will 
continue  to  trade  at  the  old  location  if  the  service  remains 
the  same.  Thus,  as  the  cultivation  of  the  trade  at  a  given 
location  proceeds,  its  value  goes  up. 


I30  ECONOMICS  OF  RETAILING 

J      As  the  trade  at  any  location  increases,  the  possibiHty  oJ 
making  a  larger  profit  increases,  and  the  best  locations  in 
town  are  nearly  always  those  that  have  been  cultivated  by 
good  business  manager  for  some  time.     As  the  desirability 
of  a  location  increases,  the  competition  for  it  grows  keener,} 
with  the  result  that  the  rent  that  will  be  offered  and  paid  t( 
the  landlord  will  not  only  increase  as  the  sales  increase,  but 
will  tend  to  do  so  somewhat  faster.     Thus  the  same  forces' 
which  operate  to  fix  relative  rents  over  poorer  and  better 
locations,  at  the  same  time  operate  to  fix  relative  rents  for 
the  same  location  as  it  grows  better  with  time. 

To  a  certain  extent,  the  increases  in  rent  due  to  some 
locations  becoming  more  desirable  are  counterbalanced  by 
the  decreases  due  to  other  locations  becoming  less  desirable. 
It  is  doubtful  if  in  this  country  the  counterbalancing  effect 
equals  the  tendency  to  increase.  Population  has  been  increas- 
ing rapidly,  earning  power  per  capita  has  gone  up  and  the 
■amount  of  retail  business  has  been  on  the  up  grade  for 
several  years.  Statistics  are  not  available  to  show  clearly 
whether  the  number  of  stores  in  the  country  has  kept  at 
even  proportion  to  population  and  to  consumption  of  goods 
during  this  time  or  not.  But  census  figures  do  show  great 
increases  in  urban  population,  particularly  in  the  larger  i:en- 
ters,  ar^  also  that  great  numbers  of  small  towns  and  vil- 
lages are  losing  ground.  Now,  it  is  in  the  larger  cities  that 
the  climbing  tendencies  of  retail  rents  are  most  evident,  and 
the  increases  in  population  that  have  taken  place  in  such 
places  may  reasonably  be  taken  as  a  cause  of  the  active  opera- 
tion of  the  rent  tendencies  above  noted.  The  retrograde 
movement  in  the  small  towns  would  make  but  little  differ- 
ence in  the  general  rent  tendencies  as  expressed  in  percen- 
tages of  sales,  for  in  such  towns  the  rent  percentages  have 
always  been  and  are  now  low. 

That  the  percentage  of  rent  to  sales  increases  as  the 


LOCATION  AND  RENT  13 1 

location  improves  is  the  testimony  of  many  people.  The 
following  quotations  will  serve  to  present  the  typical  view : 

"  The  question  of  taking  a  lease  of  such  premises  will 
be  a  most  important  one.  If  the  premises  are  in  a  growing 
neighborhood,  and  a  shop  is  taken  with  no  lease,  or  merely 
an  agreement  for  two  or  three  years,  the  tenant  will  be  at 
the  mercy  of  his  landlord  at  the  expiration  of  that  time. 

''  Should  the  business  increase  and  become  a  success, 
the  landlord  will  most  likely  require  a  substantial  increase 
in  the  rental."  ^ 

The  retailer  must  also  reckon  with  "  a  rental  that  has 
a  yearly  probability  of  increase  as  he  builds  up  a  trade. 
His  landlord  is  a  ready  partner  in  his  profits."  '^ 

"  I  am  impressed  by  the  fact  that  the  popularity  of  the 
cry  for  leasehold  reform  is  greatly  due  to  the  general  con- 
viction that  the  shopkeepers  and  small  tradesfolk  are  sys- 
tematically despoiled  by  the  landlord  whenever  a  lease  falls 
in.  The  freeholder  or  a  long-lessee  lets  a  foothold  in  the 
business  life  of  London  to  an  industrious  and  enterprising 
trader  —  a  butcher,  a  photographer,  a  grocer,  a  printer,  a 
draper,  what  you  will.  The  working  occupier  gets  a  lease 
for  a  few  years,  puts  in  what  needful  capital  he  can  raise, 
spends  freely  his  own  time  and  brains  and  makes  a  business, 
but  that  business  is  often  wholly  and  always  partially  annexed 
to  the  spot  where  it  is  made.  There  are  not  a  dozen  bakers 
in  London  who  would  not  pay  a  heavy  fine  rather  than  move 
a  mile.  Therefore,  you  have  him  in  a  trap.  Some  security 
you  must  offer  him,  or  he  will  not  put  his  money  down,  but 
the  competition  is  keen  and  he  will  take  a  wonderfully 
short  tenure.  That  done,  you  watch  his  business  with  af- 
fectionate interest,  for  you  will  skim  the  cream  off  by  and 
by.     Knowing  that  he  cannot  leave  without  a  loss,  of  say, 

6  Richard    Beynon,   "  Drapery   and    Drapers'    Accounts,"    pp.    160-161. 

7  Sullivan,    "  Markets    for   the    People,"    p.    45. 


132  ECONOMICS  OF  RETAILING 

1,000  pounds,  you  will  fine  him  900  pounds  for  your  leave 
to  stay.  You  first  charge  him  for  dilapidation,  so  called, 
then  you  lay  on  a  rent,  probably  beyond  what  another  man 
would  give  you ;  then  you  ask  a  fine,  in  cash,  or  in  the  form 
of  building  improvements,  remembering  all  the  while  that 
amazing  axiom  of  the  law,  that  whatever  of  his  property 
he  affixes  to  the  soil  forthwith  belongs  to  you."  ^ 

"  By  the  leasehold  system  the  landlord  is  not  content  with 
taking  the  house  that  he  did  not  build ;  he  also  takes  the  good 
will  of  the  trade  attached  to  the  house,  and,  on  renewing 
a  lease,  extorts  a  heavy  payment  for  allowing  the  tenant 
to  continue  to  enjoy  his  own  business  which  he  has  brought 
to  the  house  under  the  hard  penalty  of  being  turned  out  of 
the  house  altogether.  ...  It  is  also  cant  to  talk  about  free-  : 
dom  of  contracts,  for  the  tenant  would  be  ruined  if  he 
did  not  submit  to  his  landlord's  terms."  ^ 

That  rents  in  the  retail  business  do  actually  show  a 
tendency  to  increase,  not  only  absolutely  but  relatively  as 
well,  on  passing  from  poorer  to  better  locations,  or  for  the 
same  location  as  it  becomes  more  desirable  over  a  period  of 
time,  seems  to  be  borne  out  by  such  figures  as  are  available 
on  the  subject.  It  is  unsafe  to  form  any  hard  and  fast 
generalization,  however,  for  the  reason  that  so  few  figures 
are  to  be  had.  Later  statistics  may  show  other  and  different 
tendencies  at  work  more  powerful  than  these  that  have  been 
indicated  above. 

One  writer  states  that  the  average  rent  for  most  small 
stores  is  about  2%  per  cent  of  sales,  but  that  in  large  city 
stores  it  reaches  10  per  cent.^^  Elsewhere  the  statement  is 
made  that  rents  average  2  per  cent  in  country  stores,  4  per 
cent  in  small  city  stores,  and  from  4  per  cent  to  7  per  cent 

8  B.    F.    C.    Costelloe,    a   member    of    the    London    County    Council,    quoted    in 
Dawson's   "  Unearned   Increment,"    p.    40. 

9  Dawson,   "  Unearned   Increment,"   p,    52, 

10  System^  M^r.,  1911, 


LOCATION  AND  RENT  133 

for  department  stores. ^^  In  reply  to  an  inquiry  upon  this 
point  directed  to  C.  C.  Parlin/^  who  has  made  an  ex- 
tensive study  of  the  costs  of  doing  business  in  retail  stores 
in  all  of  the  principal  cities  of  the  country,  he  stated  that 
he  found  the  tendency  indicated  above  to  be  generally  true. 

Coming  at  the  same  idea  in  another  way,  the  Harvard 
Bureau  of  Business  Research  states : 

"  On  rather  limited  data,  so  that  it  must  be  stated  tenta- 
tively, it  yet  begins  to  appear  as  if  the  rent  item  fell  off 
markedly  in  importance  m  towns  of  less  than  100,000  popu- 
lation." Elsewhere  this  report  indicates  a  range  in  rent 
"  from  1.8  per  cent  to  14.6  per  cent  of  the  net  sales  of 
going  concerns."  ^^ 

Figures  collected  by  the  writer  in  person  from  a  hundred 
stores  in  towns  of  various  sizes  in  the  Middle  West  indicate 
no  exceptions  to  the  general  tendency.  For  example,  a 
neighborhood  grocery  store  in  a  Wisconsin  city  of  30,000 
population  pays  1%  per  cent  of  its  sales  for  rent,  while 
one  of  the  largest  and  most  prosperous  grocery  stores  in 
the  down  town  section  pays  2  per  cent  for  rent.  A  dry- 
goods  store  a  few  doors  off  from  the  main  street  of  a  town 
of  25,000  population  pays  3.3  per  cent  for  rent,  while  a  prin- 
cipal dry-goods  store  in  the  town  pays  3  per  cent.  A  shoe 
store  in  a  neighborhood  shopping  district  in  one  of  the 
large  cities  of  the  country  pays  2  per  cent  for  rent,  while  one 
of  the  best  located  shoe  stores  in  the  same  city  pays  6  per 
cent. 

On  passing  from  the  best  locations  in  small  towns  to  the 
best  locations  in  larger  cities,  the  same  rule  seems  to  hold. 
The  share  of  the  landlord  tends  to  increase  faster  than 
the  sales.     The  payment  for  rent  for  a  good  dry-goods  store 

11  "  How  to  Run  a  Store  at  a  Profit,"  A.   W.    Shaw  Co. 

12  Manager    Com'l.    Research   Division.     Curtis   Pub.    Co. 

13  Bulletin  No.  1,  Preliminary  Figures  on  the  Retailing  of  Shoes,  May,  1913. 


134 


ECONOMICS  OF  RETAILING 


in  a  town  of  18,000  is  2  per  cent;  for  the  best  located  storj 
in  a  city  of  25,000  it  is  3  per  cent;  for  a  well  located  dry^ 
goods  store  in  a  city  of  300,000  it  is  3%  per  cent;  and  in 
city  of  over  a  million  it  is  4%  per  cent  of  sales.  A  smal 
country  town  shoe  store  pays  2  per  cent  for  rent ;  in  a  town  oi 
25,000  population,  one  of  the  best  shoe  stores  pays  3  per  centi 
and  in  a  metropolitan  center  the  rent  is  6  per  cent.  Thej 
are  typical  of  the  figures  at  hand,  and,  if  not  conclusive,  an 
at  least  suggestive. 

In  conclusion,  rents  in  the  retail  business  seem  to  pre- 
sent the  following  characteristics : 

1.  The  amount  of  rent  paid  by  a  store  manager  for  3. 
retail  store  depends  primarily  upon  the  comparative  desira- 
bility of  the  location.  Desirability  of  location  means  pos- 
sibility of  making  profits.  The  more  desirable  the  location, 
the  higher  the  rent. 

2.  The  rent  tends  to  increase  not  only  absolutely  but: 
relatively  to  profits  on  passing  from  poorer  to  better  loca- 
tions. 

3.  The  rent  tends  to  increase  not  only  absolutely  but 
relatively  to  profits  on  passing  from  the  best  locations  in 
smaller  towns  to  the  best  locations  in  larger  towns. 

4.  The  rent  tends  to  increase  not  only  absolutely  but 
relatively  to  profits  as  the  desirability  of  a  location  increases 
over  a  period  of  time. 

5.  In  the  long  run  the  most  efficient  store  managers 
tend  to  get  possession  of  the  best  store  locations. 

Such  questions  might  very  properly  arise  at  this  point, 
as,  how  high  can  retail  rents  go;  are  there  any  checks  pre- 
venting the  complete  operation  of  these  principles  of  rent; 
and  can  retail  rents  absorb  all  pure  profits? 

In  considering  how  high  retail  rents  can  go,  one  must 
constantly  bear  in  mind  that  there  is  competition  of  land- 
lords as  well  as  of  store  managers.     The  rent  for  the  best 


LOCATION  AND  RENT 


135 


location  in  any  town  can  go  no  higher  than  the  point  which 
equahzes  the  remaining  product  in  the  form  of  profits  from 
that  location  with  the  product  which  may  be  earned  in  the 
next  best  locations.  Rent  can  absorb  a  great  part  of  the 
profits  made  by  retailers  of  average  efiticiency,  but  never 
all  of  the  profits  made  by  the  most  eflficient.  The  most  effi- 
cient man  will  leave  the  best  location  for  the  next  best  the 
moment  the  landlord  raises  the  rent  above  the  point  that 
leaves  the  store  manager  no  surplus  profit.  But  as  no 
other  manager  can  pay  as  much  rent,  the  landlord  will  soon 
,call  him  back  again.  Thus,  while  rents  tend  to  crowd  profits, 
''they  can  probably  never  absorb  all. 

One  might  assume  that  long  ownership  of  a  single  loca- 
tion well  managed  would  finally  lead  to  getting  the  highest 
rents.  The  history  of  retail  districts  in  cities  shows,  how- 
ever, that  the  point  of  best  locations  is  never  really  sta- 
tionar"^,  and  that  in  the  course  of  a  generation  it  is  likely 
to  be  several  blocks  from  the  original  place. 

Though  merchants  may  build  up  trade  and  good-will 
for  a  period  of  years,  items  of  value  that  are  in  turn  to  a 
certain  extent  absorbed  in  the  landlord's  rent,  general  cur- 
rents in  retail  trade  beyond  the  control  of  any  merchant 
finally  come  and  sweep  away  all  these  advantages.  In 
scarcely  a  city  in  the  country  does  the  center  of  the  retail 
district  occupy  the  same  place  today  that  it  occupied  fifty 
years  ago.  Though  taking  more  years  to  accomplish  the 
changes,  the  same  thing  seems  to  be  going  on  in  the  older 
cities  of  Europe  as  well.  Retail  locations  have  their  periods 
of  rise  and  decline  in  desirability  just  as  empires  have  their 
rise  and  decline  in  power.  Every  change  of  this  kind 
brings  new  opportunities  to  new  groups  of  people  in  the 
business  field. 

There  are  several  checks  to  the  complete  and  perfect 
operation  of  the  tendencies  of  rent  that  have  been  enumer- 


136  ECONOMICS  OF  RETAILING 

ated.  For  one  thing,  retail  profits  are  hardly  ever  so  cer- 
tain as  have  been  assumed  in  the  illustrations  used  in  thisi 
chapter. .  'Some  allowance  must  always  be  made  for  the  ele- 
ment of  chance  that  stands  out  large  in  the  retail  business. 
The  profits  assumed  in  the  illustrations  might  materialize 
one  year,  and  the  next  year  might  be  represented  by  a  minus 
quantity,  or  deficit.  Both  the  store  manager  and  the  owner 
of  store  property  must  constantly  make  estimates  of  the 
possible  business  and  profits,  but,  in  practice,  these  estimates  '. 
are  always  subject  to  qualification.  Hence  the  merchant 
offers  less  retit,  and  the  landlord  may  take  less  rent,  for  a 
time,  than  would  otherwise  be  necessary  or  probable  if  the 
business  were  more  stable. 

Another  check  to  the  freer  operation  of  these  tendencies 
is  the  ignorance  of  the  landlord  in  many  cases  regarding 
what  his  tenant,  the  merchant,  is  really  accomplishing  with 
the  location.  The  latter  conceals  his  profits  and  pleads  for 
the  lowest  possible  terms.  In  the  absence  of  keen  compe-  ' 
tition  he  is  in  many  cases  able  to  keep  his  rent  down  to  a 
low  percentage  of  sales,  simply  because  the  landlord  does 
not  know  how  much  the  location  is  worth  to  him.  ) 

Then  there  are  customary  rents  beyond  which  landlords 
find  it  hard  to  push  the  retailers.  In  some  towns  $100 
per  month  ts  the  highest  customary  rent,  though  on  strict 
economic  principles,  some  locations  mjgtepay  $110,  $125, 
or  even  more.  The  retailers  of  a  townTdhietimes  combine, 
or  come  to  an  understanding,  not  to  pay  more  than  a  certain 
rent.  ^Checks  on  retail  rents  such  as  customs  and  combina- 
tions of  these  kinds  are  characteristic  of  the  easy  going  lit- 
tle country  town  rather  than  the  brisk,  rapidly  growing  city. 
In  the  latter  environment  custom  counts  for  nothing  and 
combinations  are  usually  easily  broken  up. 

'  The  long  time  leasing  system  also  acts  as  a  check  on  the 
operation  of  the  laws  of  rent.     It  prevents  the  ready  adjust- 


LOCATION  AND  RENT 


137 


ment  of  rent  to  the  actual,  present  desirability  of  the  loca- ' 
tion.  Under  the  long  term  lease,  sometimes  one  party  gets 
the  benefit  and  sometimes  the  other,  depending  largely  upo/i 
whether  retail  trade  currents  are  coming  towards  or  passiiig 
away  from  the  location  at  the  time  of  the  making  of  the 
lease  and  thereafter. 

Bargaining  is  not  always  carried  to  the  extreme  auction- 
ing method  indicated.  In  many  cases  a  merchant  makes  as 
good  an  offer  as  he  can,  once  and  for  all,  and  the  landlord 
takes  him  at  his  word,  and  accepts  or  rejects  as  the  case 
may  be.  Thus  errors  in  market  judgment  are  sometimes 
made.  The  rent  is  sometimes  placed  higher  than  it  need  be. 
Actual  lessors  are  not  always  available  at  the  times  that  leases 
expire,  hence  good  locations  sometimes  go  begging  as  it 
were,  because  of  lack  of  good  merchants  in  the  market 
seeking  for  locations. 

Many  such  checks  act  to  prevent  the  rent  tendencij^s 
from  operating  freely.  In  some  cases  the  checks  may  be 
more  powerful  than  the  tendencies.  The  most  that  can 
be  said  until  further  statistics  upon  the  subject  have  been 
gathered  is  that  the  resultant  of  the  opposing  forces  seems 
to  be  somewhat  in  favor  of  what  we  have  here  called  the 
"  tendencies  of  retail  rents."  , 


CHAPTER  IX 

LOCATION  AND  RENT  IN  THE  RETAIL 
BUSINESS   (Continued) 

Factors  of  Desirability  in  Location 

The  value  of  a  retail  store  location  is  determined  solely 
by  the  possibilities  it  offers  of  making  a  profit.     The  pos- 
\  sibilities  of  making  a  profit  depend  upon  the  possibilities  of 
making    sales.     There    can    be    no    profits    without    sales, 
j  but  there  can  be  sales  without  profits.     The  sales  of  some 
^  goods,  such  as  class  goods,   fashion  goods,  and  novelties, 
yield  a  high  profit  in  proportion  to  sales.     Other  goods,  such 
I  as  staples  of  everyday  use  by  the  masses,  generally  yield 
/  but  a  low  profit  in  proportion  to  the  sales.     Thus  small 
!    sales  with  high  profits  may  in  some  cases  be  fully  as  profit- 
able as  large  sales  with  low  profits.     In  any  case,  the  profit 
I    is  the  important  consideration.     A  good  location  is  one  that 
1    permits  the  retailer  to  make  a  good  profit  either  from  small 
!    sales  and  Isitge  margins,   or   from  larger  sales,   with  un- 
usually smaller  margins  of  profit. 
/        The  customary  method  of  expressing  the  rent  that  a 
store  pays  as  a  percentage  of  the  sales  of  the  store,  is,  there- 
fore, defective  as  a  basis  of  comparison  with  other  stores, 
unless  one  also  knows  what  gross  profit  is  made  on  the 
sales.     Of  the  two  items,  profit  is  by  far  the  more  importa.it 
with  which  to  compare  the  outlay  for  rent. 

The  possibility  of  making  sales  depends  upon  accessi- 
biHty  to  the  purchasing  public.  The  greater  the  number  of 
people,  other  things  being  equal,  who  live  near,  who  come  to, 

138 


LOCATION  AND  RENT 


139 


or  who  pass  by  a  certain  location,  the  more  valuable  that 
location  is.  Every  retailer  who  knows  his  business  recog- 
nizes this.  The  president  of  the  Woolworth  five  and  ten 
cent  stores  company  expressed  this  idea  exactly  when  he 
said,  "  I  setiny  traps  where  the  mice  are  thickest."  Store 
managers,  particularly  the  managers  of  certain  chain-store 
systems,  on  seeking  out  new  locations  for  stores,  first  de- 
termine the  number  of  people  who  pass  the  proposed  loca- 
I  tions,  actually  counting  them  for  certain  periods  of  time, 
often  for  weeks,  so  as  to  get  accurate  data,  and  then  giv- 
ing their  preference  to  those  places  —  other  things  being 
equal  —  that  show  the  highest  counts. 

The  merchant  who  locates  at  the  point  that  is  easiest  for 
customers  to  get  to,  that  requires  the  least  possible  effort 
from  them  in  every  possible  way,  has  the  best  chance  to 
succeed.  This  well  known  fact  accounts  for  the  location 
of  the  crossroads  store  in  the  country,  the  comer  store  in 
the  village,  the  neighborhood  store  in  the  residence  section 
of  the  city,  and  the  "  downtown  "  or  "  uptown  "  store  in 
the  center  of  the  city. 

The  neighborhood  store  aims  to  get  as  close  to  the  homes 
of  the  prospective  customers  as  possible,  so  that  it  will  be 
easy  for  them  to  come  to  the  store  or  to  send  for  goods  by 
means  of  children  or  servants,  and  so  that  deliveries  can  be 
made  quickly.     But  neighborhood  stores  must  as  a  rule  con- 
tent themselves  with  handling  only  such  lines  of  goods  as 
are  of  daily  necessity  in  the  surrounding  homes  —  such  as 
groceries,  meats,  baked  goods,  and  dairy  products.     Another', 
limitation  on  a  neighborhood  store  that  is  clearly  evident,  is  1 
that  its  area  of  trade  is  limited.     Hardly  ever  does  trade  •, 
for  such  a  store  come  further  than  four  or  five  blocks.     Be-  j 
yond  this  radius  the  influence  of  competing  neighborhood 
stores,  or  the  attraction  of  the  stores  in  the  center  of  the 
city  overpower  the  trade  possibilities  of  the  neighborhood 


I40  ECONOMICS  OF  RETAILING 

stores.  There  are  here  and  there  neighborhood  store  mai 
agers  who  are  able  to  push  their  trade  beyond  these  natun 
Hmits,  but  such  cases  are  exceptional.  The  amount  of 
neighborhood  trade  depends,  therefore,  upon  the  population 
of  the  immediate  vicinity,  and  rent  for  such  locations  is 
similarly  determined. 

Stores  in  rich,  fashionable  neighborhoods  are  able  to 
command  higher  profits  in  proportion  to  sales  than  stores  in 
poorer  neighborhoods,  and  the  proportion  of  rent  to  sales 
varies  in  the  same  way.  i  A  grocery  store  in  one  of  the 
best  residence  districts  of  a  Middle- Western  city  of  350,000 
people,  pays  a  rent  of  nearly  3  per  cent  on  its  sales,  while 
another  neighborhood  grocery  in  another  section  of  the 
same  city  occupied  by  wage  earners,  a  store  doing  approxi- 
mately the  same  volume  of  business  as  the  other,  pays 
slightly  less  than  2  per  cent  of  its  sales  for  rent.  While  the 
sales  are  about  the  same  in  both  cases,  the  first  merchant  is 
slightly  better  off.  The  lines  of  goods  he  handles  make  a 
much  better  profit  per  dollar  of  sales  than  do  those  handled 
by  the  second  store.  The  profits  from  his  16cation  are  con- 
siderably higher,  hence  he  has  to  pay  a  higher  percentage 
for  rent,  but  still  makes  more  money  than  the  second. 

The  centrally  located  store,  as  the  term  expresses,  is 
located  where  the  most  people  naturally  come  together, 
whether  it  be  at  a  country  crossroads,  the  place  of  inter- 
section of  principal  streets  in  a  city,  or  at  the  intersection  of 
street  car  or  other  transportation  lines.  It  is  a  matter  of  dis- 
pute as  to  whether  a  retail  store  away  from  the  traveled 
streets  can  be  conducted  so  well  as  to  draw  a  profitable  and 
permanent  trade  to  itself,  but  it  is  a  well  recognized  fact  that 
most  merchants  do  not  court  the  difficulties  of  such  an  at- 
tempt. The  commonest  struggle  among  retailers  is  that  for 
the  location  which  is  passed  by  the  greatest  number  of  people. 

In  considering  the  value  of  a  location  for  a  retail  store, 


LOCATION  AND  RENT 


141 


however,  something  more  than  the  number  of  passers-by 
must  be  taken  into  account.  The  purchasing  power  and 
the  probable  proportion  of  customers  from  the  passing 
crowds  are  most  important  considerations.  Hence  in  an- 
alyzing a  location  for  a  retail  store,  one  must  determine 
what  economic  classes  are  represented,  to  what  extent  in 
each  case,  and  what  their  buying  habits  are.  A  knowledge 
of  the  average  wealth  might  be  misleading,  especially  if 
there  are  several  classes  in  a  community.  Most  of  the 
passers-by  might  come  from  families  whose  total  incomes 
were  under  $800  per  year,  while,  if  a  millionaire  came  by 
occasionally,  the  average  income  might  seem  to  be  above 
$1,000.  What  the  man  who  wishes  to  start  a  retail  store 
wants  to  know  is  how  many  out  of  this  passing  crowd  spend 
$10  for  their  suits  of  clothes,  how  many  $15,  how  many 
$20,  how  many  $25,  and  how  many  above  that;  or  how 
many  of  the  women  passing  spend  less  than  $10  per  year 
for  millinery,  how  many  between  $10  and  $20,  how  many 
between  $20  and  $50;  or  how  many  of  the  men  who  pass 
smoke  5-cent'  cigars  and  how  many  10-cent  cigars,  and  to 
what  extent  they  are  smokers.  The  average  of  wealth  is 
a  poor  guide  to  such  facts.  Specific  amounts  expended  by 
specific  numbers  of  people  who  pass  by  are  much  more  de- 
sirable facts. 

Another  classification  of  passers-by  that  will  prove  help- 
ful in  determining  an  estimate  of  the  possibilities  of  a  loca- 
tion is  based  on  the  purpose  or  the  reason  for  their  passing 
by.  Some  are  going  to  or  coming  from  their  place  of  work 
or  business.  Others  are  out  for  pleasure.  Others  are  out 
to  buy,  while  others  are  out  merely  to  look. 

Passers-by  going  to  or  returning  from  work  or  business 
are,  as  a  rule,  not  good  customers  for  anything,  with  the 
one  exception  of  the  higher-salaried  and  income-receiving 
classes  who  patronize  news-stands,  boot  blacks,  barber  shops, 


142  ECONOMICS  OF  RETAILING 

cigar  stores,  and,  to  some  extent,  haberdasheries,  on  theii 
way  to  and  from  business.  Large  crowds  of  factory  em- 
ployees, men  and  women,  may  pass  a  store  day  after  day  for 
years  on  their  way  to  and  from  work  and  never  patronize 
it.  On  their  way  to  work,  there  is  usually  little  time  left 
before  the  whistle  blows,  hence  there  is  little  or  no  chance 
to  look  at  goods.  On  their  way  from  work,  they  are  usually > 
tired  and  hungry  and  not  in  the  mood  for  shopping.  Many 
factory  workers,  particularly  of  the  younger  generation,  do 
not  care  to  trade  in  a  store  or  in  a  part  of  town  where-^ 
their  occupation  is  known  or  where  any  reference  may  be 
made  to  their  daily  labor.  The  ''  down  town  "  retail  dis- 
trict is  much  more  likely  to  draw  their  trade.  A  very 
large  part  of  the  goods  of  all  kinds  needed  by  the  family 
from  v/hich  the  factory  worker  comes  is  purchased  by  the 
wife  or  mother,  and  thus  the  trade  goes  to  the  locations 
that  are  the  most  convenient  or  attractive  for  her.  The 
only  classes  of  retail  business  that  seem  to  do  well  on  the 
custom  of  working  people,  going  to  or  coming  from  work, 
are,  too  often,  the  saloons,  and  the  cheaper  grade  of  res- 
taurants and  lunch  counters. 

Pleasure  seekers  are  usually  better  buyers  than  the  army 
of  workers  passing  to  or  from  work.  Refreshments,  flow- 
ers, sweets,  souvenirs,  and  trinkets  are  some  of  the  objects 
that  may  appeal  to  their  fancies.  Such  trade  is  strictly 
chance  custom.  It  is  entirely  dependent  upon  the  time  of 
year,  the  occasion,  and  the  weather.  A  fine  summer  day 
brings  out  a  crowd  of  people  along  the  fashionable  streets. 
A  converging  point  of  such  thoroughfares  makes  a  splendid 
location  for  a  refreshment  stand.  On  stormy  days  the  same 
location  may  be  worth  nothing.  The  street  leading  out  to 
the  fair  grounds  when  the  fair  is  in  session,  and  the  route 
to  the  circus  ground  when  circus  is  in  town,  are  dotted  with 
refreshment  booths,  the  best  located  doing  a  good  business 


LOCATION  AND  RENT  143 

and  finding  it  profitable  to  pay  a  high  rental  for  the  day 
for  the  location  which  would  be  worthless  on  the  morrow 
for  the  same  purpose. 

The  people  who  come  out  for  the  express  purpose  of 
shopping  and  buying  are  for  the  majority  of  retail  businesses 
by  far  the  most  important  classes.  The  places  to  which  these 
people  go  are  the  places  that  are  valuable  for  retail  pur- 
poses. Shoppers  and  buyers  go  where  they  think  they 
can  see  and  get  what  will  give  them  the  most  satisfaction. 
Except  for  such  necessities  as  common  foods,  meats,  and 
so  on,  the  place  to  buy, .  according  to  the  opinion  of  the 
shoppers,  is  nearly  always  in  the  heart  of  the  town.  This 
may  be  the  location  of  the  village  corner  store,  the  big 
stores  at  the  intersection  of  the  principal  streets  in  the  city, 
or  the  place  where  the  great  public  markets  are  located. 
Here,  in  the  mind  of  the  average  customer,  is  offered  the 
biggest  variety,  the  best  qualities,  the  best  facilities  for  ex- 
amination, and  the  biggest  bargains.  Because  others  come 
here  to  purchase  goods,  this  is  assumed  to  be  the  best  place. 
In  any  case,  this  central  point  is  the  most  valuable  retail 
store  location.  Retailers  who  cannot  get  this  best  location 
struggle  to  get  as  near  to  it  as  possible,  and  rents  are  largely 
bargained  for  on  the  basis  of  distance  from  this  central 
market  point.  Thus  the  retail  store  group  spreads  out  from 
the  center,  especially  along  the  streets  most  frequented  or 
best  traveled. 

Stores  tend  to  cluster  around  this  best  location  in  the 
city  and  to  form  what  is  known  as  the  retail  district.  The 
stores  established  are  not  always  competitors.  Almost  as 
frequently  they  arrange  themselves  into  complementary 
groups  co-operating  with  each  other  in  the  attraction  of  cus- 
tom and  in  the  making  of  sales.  Thus,  stores  dealing  in 
men's  goods  are  sometimes  found  on  one  side  of  the  street, 
while  stores  dealing  in  women's  goods  are  located  on  the 


144  ECONOMICS  OF  RETAILING 

other  side.  Dry-goods,  millinery,  jewelry,  shoe,  and  bool 
stores  are  likely  to  be  found  close  together,  if  not  entirely 
absorbed  under  one  roof  in  the  form  of  a  department  store. 
Grocery  stores,  meat  markets,  and  bakeries  tend  to  form 
another  grouping,  each  co-operating  in  a  way  with  the 
other  kinds  of  stores  in  the  group.  Confectioneries,  soda 
and  ice  cream  parlors,  florists'  shops,  and  theatres  form  an- 
other natural  grouping.  The  saloon,  billiard  hall,  tobacco 
and  news-stand,  and  the  cheaper  grade  of  restaurants  form 
still  another. 

But  stores  that  sell  exactly  the  same  kinds  of  goods,  and 
that  are  clearly  competitive,  do  not  necessarily  merely  divide 
the  business  that  was  formerly  done  by  one  store.  When 
there  is  known  to  be  competition  this  in  itself  attracts  trade, 
and  people  come  from  farther  away.  New  wants  are  de- 
veloped that  did  not  exist  before.  Thus  the  result  is  an 
increase  in  the  total  amount  of  trade.  Cases  are  known 
where  the  increase  was  so  great  as  to  give  to  each  of  the 
competitors  more  business  than  had  been  enjoyed  by  the 
single  merchant  before.     This,  of  course,   is  exceptional. 

The  tendency  of  stores  to  cluster  closely  together  is  not 
only  profitable  to  the  merchants  themselves,  but  is  a  con- 
venience Jo  the  customers.  In  fact,  the  convenience  to  the 
customer  is  the  chief  cause  for  the  close  grouping.  Stores 
handling  the  same  or  similar  lines  and  stores  handling  dif- 
ferent lines  of  goods,  all  close  together,  save  the  customer's 
time.  This  is,  probably,  the  greatest  argument  for  the  de- 
partment store,  which  assembles  many  lines  under  one  and 
the  same  roof. 

Most  customers,  particularly  women,  like  to  compare . 
values  in  different  stores  before  purchasing.  An  investi--* 
gator  for  a  large  publishing  house  ^  has  stated  that  '*  before 

1  C.    C.    Parlin,   Manager   of   Research    Division,    Curtis   Publishing   Co.,  in  an 
address  before   the  Advertisers'   Convention,   Cincinnati,   Sept.   24,   1913. 


LOCATION  AND  RENT 


145 


she  buys,  a  woman  usually  visits  three  stores  to  compare 
goods.  The  man,  who  is  distinctly  *  anti-shop  '  in  his  in- 
clinations, on  the  contrary,  visits  but  one."  Competing 
stores,  located  close  together,  and  dealing  in  goods  women 
buy,  permit  comparisons  to  be  made  easily. 

Another  advantage  of  locating  competing  stores  close 
together  is  the  possibility  of  drawing  trade  from  customers 
who  had  planned  on  going  directly  to  some  one  of  the  com- 
petitors. Such  customers  may  frequently  be  induced  to  en- 
ter other  stores  by  attractive  window  displays,  and  whether 
they  do  or  do  not  buy  the  goods  that  they  had  come  out 
to  buy  from  the  competitor,  perhaps,  seeing  the  displays, 
they  will  buy  other  goods  that  they  had  not  thought  of 
before.  In  this  way  even  competitors  help  each  other  to  a 
certain  extent. 

A  location  next  to  a  large,  old,  well  advertised,  well 
known,  and  popular  store  is  always  valuable  for  another 
store  dealing  either  in  complementary  or  competitive  lines 
of  goods.  A  Middle-West  jobbing  house  that  has  a  service 
department  to  aid  those  who  wish  to  establish  variety  goods 
stores  frequently  advises  the  locating  of  the  store  —  so  it  is 
stated  —  next  door,  if  possible,  to  a  syndicate  five  and  ten 
cent  store,  if  there  happens  to  be  one  in  the  town.  Out  of 
the  crowds  who  go  to  the  latter,  many  can  be  attracted 
into  the  independent  variety  goods  store.  The  advertising 
value  of  the  big  store  is  shared  to  a  certain  extent  by  the 
smaller  and  newer  store  next  door. 

In  cities  or  towns  having  a  public  market  that  amounts 
to  anything,  stores  frequently  group  themselves  about  the 
market  place.  It  has  been  remarked  by  several  writers  that 
the  establishment  of  city  markets  in  this  country  is  usually 
opposed  by  the  city  merchants,  particularly  those  who  deal 
in  the  goods  likely  to  be  bought  and  sold  on  the  public 
market.     There  is  probably  reason  for  this,  but  after  the 


1 


146  ECONOMICS  OF  RETAILING 

city's  merchandising  has  once  readjusted  itself  to  the  marke 
its  removal  is  generally  strongly  opposed  by  the  merchant 
The  removal  of  the  city  market  has  in  many  cases  mine 
whole  retail  districts  which  had  been  built  up  around  an 
near  the  old  market  place.     This  merely  exemplifies  th 
principle  that  retail  stores  must  go  to  the  people  and  tha 
the  people  are  not  likely  to  go  out  of  their  way  to  find  the 
stores. 

We  have  so  far  considered  the  possibilities  of  a  retail 
store  location  from  the  standpoint  of  the  number  of  passers 
by,  the  buying  power  represented,  and  the  purposes  that 
bring  them  by.     There  is  another  factor  having  an  influence 
on  the  value  of  a  location  and  that  is  the  buying  habits  of 
the  possible  customers.     Not  all  people  within  even  the  same 
economic  classes,  or  those  having  the  same  incomes,  expend 
their  money  in  the  same  way.     In  nothing  is  this  more 
.clearly  exemplified  than  in  lines  commonly  called  luxuries. 
Some  people  spend  their  money  freely  for  such  items,  while 
others  with  the  same  income  do  so  sparingly.     The  average 
consumption  of  such  commodities  varies  greatly  from  one 
^community  to  another,     According  to  George  J.  Whelan, 
j  President  of  the  United  Cigar  Stores  Company,  the  expendi- 
ture for  gigars  is  as  follows  in  the  principal  cities : 

Annual  Cigar  Consumption  in  American  Cities  ^ 

New  York $1.74  per  capita 

Chicago    .63  per  capita 

St.  Louis   1.21  per  capita 

Rochester 97  per  capita 

Spokane 60  per  capita 

San  Francisco   QkO^per  capita 

Milwaukee 23  per  capita 

Atlantic  City   2.55  per  capita 

2  From    Printers'    Ink,    quoted    in    Cherington's    "  Advertising    as    a    Business 
Force,"    p.    187. 


LOCATION  AND  RENT 


147 


Other  things  being  equal,  the  value  of  a  location  for 
a  cigar  store  passed  by  a  certain  number  of  people  can  not 
be  as  high  in  Milwaukee  as  a  similar  location  passed  by 
about  the  same  number  in  San  Francisco. 

Such  differences  in  tastes  and  habits  are,  no  doubt,  just 
as  important  in  many  other  lines.  In  this  connection  it  may 
be  noted  that  tastes  and  habits  are  neither  stationary  nor 
permanent.  What  is  true  for  one  year  may  not  be  true 
for  the  next.  In  so  far  as  such  changes  take  place,  they 
are  reflected  in  the  retail  business  and  thence  back  to  the 
location  of  the  retail  store  that  is  most  conveniently  located 
to  serve  the  demands. 

Any  influence  on  the  course  of  people's  movements  af- 
fects the  value  of  a  retail  location.  Certain  streets  are 
more  popular  than  others,  and  one  side  of  the  street  is  gen- 
erally more  traveled  than  the  other,  with  a  consequent  dif- 
ference in  value  for  retail  purposes.  One  must  assume  that 
there  are  definite  reasons  for  this,  and  upon  the  basis  of 
these  reasons  the  retailer  must  select  his  location  or  make 
the  best  use  of  the  one  already  selected. 

Sunlight  and  temperature  tend  to  make  one  side  of  the 
street  more  crowded  than  the  other.  In  warm  climates  and 
in  warm  weather,  people  seek  the  shady  side.  In  colder 
climates,  and  in  the  winter  time,  they  walk  the  sunny  sides. 
Which  side  of  the  street  is  most  popular  must  depend  there- 
fore upon  what  time  of  the  day  shoppers  come  out  in 
greatest  numbers.  In  most  stores  the  heaviest  trade  occurs 
during  the  afternoon.  The  richer  classes  in  the  larger  cities 
do  their  shopping  generally  between  11  a.  m.  and  3  p.  m. 
For  most  parts  of  this  country  the  sides  of  the  street 
that  are  shady  during  the  afternoon,  namely  the  south 
and  the  west  sides,  are  the  ones  which  people  prefer  to 
take.  The  exceptions  are  some  of  the  cities  in  the  most 
northern  tier  of  states,  where  the  most  popular  sides  of  the 


148  ECONOMICS  OF  RETAILING 

street  are  the  north  and  east  sides.  This  seems  to  be  true 
more  especially  for  the  winter,  late  fall,  and  early  spring 
months. 

The  shady  side  of  the  street  has  another  advantage. 
] Because  of  the  reflection  of  softer  lights  from  the  plate 
I  glass  and  show-window  back-grounds  on  this  side,  the  win- 
/dow  displays  appear  to  better  advantage,  and,  therefore, 
j  draw  more  attention.  Also  a  greater  variety  of  goods  can 
be  shown,  and  much  better  effects  can  be  obtained  on  the 
shady  side  of  the  street  than  on  the  sunny  side,  because  of 
less  danger  to  the  goods  themselves  from  the  effects  of  the 
sun.  Goods  of  delicate  shades  generally  fade  easily  and 
need  protection  from  the  sun's  direct  rays.  In  order  to  dis- 
play such  goods  on  the  sunny  side,  awnings  are  necessary, 
but  awnings  interfere  with  the  widest  and  best  use  of  the 
front  of  the  building  and  windows,  hence  may  be  considered 
in  the  light  of  necessary  evils  only. 

In  New  York  City,  for  example,  the  west  side  of  Broad- 
way and  the  south  side  of  Fourteenth  and  Twenty-third 
streets  and  other  wide  streets  are  worth  much  more  than 
the  opposite  side.  On  the  average  the  rental  value  of  the 
favorite  locations  is  about  double  those  of  ordinary  lo- 
cations in  this  vicinity.  There  are  exceptions,  however. 
"  A  Wanamaker  can  pull  trade  anywhere,  but  if  Macy 
should  change  places  with  Wanamaker,  history  would  re- 
cord a  very  different  story  of  the  retail  dry-goods  trade  of 
New  York."  ^ 

R.  M.  Hurd,  in  his  "  Principles  of  City  Land  Values  " 
states  that  the  west  side  of  north  and  south  streets  and  the 
south  side  of  east  and  west  streets  is  generally  worth  from 
20  per  cent  to  40  per  cent  more  than  the  opposite  sides,  and 
in  some  cases  the  difference  in  value  may  run  as  high  as  100 
per  cent. 

3  Dry  Goods,  Dec,  1911. 


LOCATION  AND  RENT  149 

In  some  places  there  are  generally  prevailing  winds  that 
strike  certain  locations  or  one  side  of  certain  streets  in  a  more 
disagreeable  way  than  the  other  side,  causing  values  to  be 
less  on  the  exposed  side.  Dusty  and  windy  locations  are 
never  desirable  if  they  can  be  avoided. 

If  a  town  is  built  on  a  side  hill,  the  upper  side  of  the 
street  is  nearly  always  preferable  to  the  lower.  There 
seems  to  be  a  sort  of  inherent  tendency  among  human  be- 
ings, as  among  goats,  to  get  up  on  the  upper  side  of  things. 
The  reason  may  be  that  the  upper  side  gives  a  better  view, 
or  it  may  be  that  it  is  less  laborious  to  go  from  the  upper 
side  to  the  lower  side,  if  necessary  to  cross  the  street. 
Dust  and  refuse  tend  to  gather  on  the  lower  side  of  the  street 
with  the  result  that  the  upper  side  is  generally  cleaner. 
Whatever  the  cause,  the  fact  remains  that  the  upper  side 
seems  to  be  favored  in  most  cases.  This  tendency  may  be 
remedied  to  a  certain  extent,  but  not  entirely,  by  having  the 
streets  graded  so  as  to  put  the  walks  on  both  sides  on  the 
same  level. 

Most  merchants  of  many  years'  experience  know  of 
''  hoodoo  "  locations,  places  which  would  seem  to  be  favor- 
able for  a  retail  store,  but  in  which  every  merchant  who 
has  tried  them  has  failed.  It  is  not  easy  to  account  for 
these  things.  For  one  thing,  a  succession  of  failures  hurts 
a  location  for  future  trade.  Not  only  do  careful  mer- 
chants avoid  such  places,  but  customers  stay  away  also.  It 
takes  more  than  average  ability  to  turn  the  tide  towards 
success  in  some  such  places.  There  is  an  old  adage  among 
merchants  to  the  effect  that  it  is  easier  to  start  a  new 
business  than  it  is  to  raise  a  dead  one. 

Often  the  only  explanation  for  the  value  of  a  side  of  a 
street  for  business  purposes  is  popular  habit.  People  con- 
tinue to  take  one  side  rather  than  the  other  because  some 
time  in  the  past  they  found  it  best  to  do  so.     After  the  rea- 


I50  ECONOMICS  OF  RETAILING 

son  for  so  doing  passed  away,  the  practice  continued  as 
habit. 

Speaking  of  the  peculiarities  of  the  habit  of  crowds, 
A.  Bruce,  general  manager  of  the  Beck  Shoe  Store  Compan] 
of  New  York,  operating  a  chain  of  New  York  shoe  stores] 
says: 

"  Walk  up  Broadway  from  23rd  street  to  50th.  The 
crowd  seems  to  be  about  the  same  on  both  sidewalks. 
There  are  stores  on  both  sides  too,  prosperous  stores.  It 
would  seem  to  be  a  matter  of  no  consequence  which  you 
located  a  shoe  store  on.  Yet  the  west  side  is  good  for 
shoes  and  the  east  side  is  bad.  That  holds  good  up  as  far 
as  40th  street  and  then  it  suddenly  shifts.  From  there 
up  to  50th  the  east  side  of  the  street  is  a  little  better  than 
the  other.  Why?  I  can't  tell  you,  but  it  is  true." 
i  Corner  lots  are  more  valuable  than  inner  lots  for  the 
very  reason  that  more  people  pass  them.  The  corner  of 
two  streets,  both  equally  well  frequented,  is  passed  by 
twice  as  many  people  as  any  inside  lot  on  either  street. 
Again,  the  corner  is  a  kind  of  stopping  place  or  pausing 
point  for  people  who  are  uncertain  as  to  where  they  are 
to  go.  IJeavy  traffic  passing  may  cause  them  to  stop.  The 
moment's  pause  may  be  sufficient  to  cause  the  passer-by  to 
/  notice  the  corner  store  window  display  and  to  be  drawn  in 
/  to  examine  goods  and  to  buy.  In  bad  weather,  corner  lo- 
cations are  valuable  because  people  drop  in  while  waiting  for 
cars,  in  order  to  get  warm,  or  to  await  the  passing  of  a 
shower,  etc.  The  corner  is  frequently  the  designated  meet- 
ing place  for  many  people.  For  these  reasons  the  corner  is 
of  considerably  greater  value  than  the  inside  lot,  and  espe- 
cially for  businesses  depending  upon  pick-up  trade  or  chance 
custom,  such  as  cigar  stores,  drug  stores,  book  stores,  news 
stores,  shops  dealing  in  curios,  souvenirs,  and  novelties  of 
any  kind.     A  well-known  manager  of  a  chain  of  shoe  stores 


LOCATION  AND  RENT  151 

estimates  that  for  the  shoe  business  the  corner  is  worth  at 
least  20  per  cent  more  than  an  inside  location.^  Some  tax  and 
assessment  experts  assert  that  the  corner  lot  is  worth  50 
per  cent  more  than  inside  lots,  and  that  the  corner  influence 
extends  at  least  100  feet  down  each  street  from  the  corner 
in  a  diminishing  ratio.  Newark,  New  Jersey,  for  example, 
assesses  all  business  corner  lots  50  per  cent  higher  than  in- 
side lots.^ 

There  is  a  difference  in  value  in  the  corner  locations  that 
corresponds  to  the  difference  found  between  opposite  sides 
of  the  street,  and  for  similar  reasons.  In  localities  where 
the  south  and  west  sides  of  the  streets  are  most  popular,  the 
southwest  corner  is  most  valuable,  the  southeast  corner 
comes  next,  the  northwest  corner  next,  and  the  northeast 
corner  last.  In  localities  where  the  sunny  sides  are  pre- 
ferred, these  values  would  be  reversed. 

The  presence  of  near-by  disagreeable  -  features  of  any 
kind  reduces  the  value  of  a  location  for  store  purposes. 
Smoke,  dust,  disagreeable  odors,  and  noise  from  near-by 
shops  or  factories,  hurt.  A  location  that  is  darkened  by 
shadows  of  large  buildings  is  also  less  valuable.  All  of 
these  factors  depreciating  the  value  of  the  location  must  be 
made  up,  if  at  all,  by  using  more  advertising,  special  store 
fronts,  unusual  lighting  effects,  or  striking  window  displays. 

Proximity  to  stables,  saloons,  hospitals  or  schools  gener- 
ally cuts  down  retail  trade,  and  hence  affects  location  value 
adversely.  Women  dislike  going  near  saloons  and  stables. 
The  hospital  always  suggests  unpleasant  things  to  the  mind 
of  the  average  person,  and  location  near  a  school  is  likely  to 
be  affected  by  the  noise  of  children  playing. 

If  the  sidewalk  is  good  on  one  side  of  a  street  and  poor 
on  the  other,  or  if  the  sidewalk  is  level  on  one  side  and 

4  Printers'  Ink,  Aug.  7,  1913. 

5  "  Real  Estate  and  Its  Taxation  in  Philadelphia,"  a  pamphlet  published  by  the 
City  of  Philadelphia. 


152  ECONOMICS  OF  RETAILING 

uneven  on  the  other,  people  will  take  the  better  walks  in] 
the  large  majority  of  cases.  Steps  up  or  down  from  thej 
sidewalk  to  a  store  lessen  the  value  of  the  location.  A  rick- 
ety sidewalk  has  the  effect  of  driving  customers  to  the  other] 
side.  A  sidewalk  kept  clean,  free  from  snow,  ice,  slush,  and! 
standing  pools  after  rains  is  always  preferred. 

Old  and  worn-out  structures  near  by  also  hurt  a  retail 
location,  and  it  is  commonly  asserted  that  an  empty  build- 
ing next  door  to  your  store  is  your  worst  competitor.  The 
best  location  is  the  one  that  looks  the  most  prosperous. 
Empty  and  old  buildings  indicate  favor  passed  away.  The 
store  manager  who  finds  that  the  building  next  to  his  is 
vacated,  in  many  cases,  either  tries  to  rent  it  for  his  own 
use,  or  attempts  to  get  a  tenant  for  the  property  who  will 
sell  non-competitive  or  complementary  lines  of  goods. 

Other  things  being  equal,  the  store  easiest  for  customers 
tcyreach  has  the  best  location.  The  places  where  the  cars 
stop,  where  the  farmers  tie  their  teams  when  coming  to 
town,  and  where  the  street  has  the  best  pavement  or  road 
bed,  are  the  most  valuable.  Street  cars  and  telephones  tend 
to  centralize  the  business  of  a  community  into  the  central  ^ 
section  of*  town.  This  results  in  an  increase  in  the  value 
of  land  in  this  section,  and  a  decrease  in  land  values  in  other 
parts  of  town  farther  out,  for  retail  store  purposes.  Pat- 
ronage given  distant  towns,  the  development  of  parcels  post, 
and  the  use  of  the  automobile,  and  even  to  a  certain  extent 
the  development  of  better  roads  for  wagons  and  buggies 
have  helped  to  concentrate  trade  in  the  retail  districts  of 
the  larger  cities.  Vj-ocations  in  such  places  have  seemingly 
grown  more  valuable  with  nearly  every  invention  that  has 
been  made  in  the  way  of  improving  the  means  of  transpor- 
tation and  communication. 

Many  other  factors  of  varying  degrees  of  importance  ' 
influence  the  value  of  retail  store  location,  but  all  depend  for 


LOCATION  AND  RENT 


153 


their  influence  upon  the  principle  laid  down  at  the  beginning 
of  this  chapter,  namely,  that  the  value  of  a  site  depends 
entirely  upon  its  possibilities  for  making  profits.  For  the 
opportunity  to  use  the  site,  the  tenant  pays  his  rent. 


CHAPTER  X 

LOCATION  AND  RENT  IN  THE  RETAIL 
BUSINESS   (Continued) 

Intensive  Use  of  Location 

A  good  location  for  a  retail  store  simply  offers  the  pos- 
sibility of  getting  a  good  profitable  trade,  provided  the 
manager  of  the  store  "  hustles  "  for  it.  A  good  location 
differs  from  a  poor  location  only  in  the  fact  that  the  limits 
of  trade  of  the  latter  are  more  quickly  reached.  The 
former  will  bear  intensive  cultivation,  the  latter  will  not. 
The  rent  is  the  payment  for  the  opportunity  to  cultivate 
and  to  harvest  the  product,  whatever  that  may  amount  to, 
of  the  given  location. 

When  the  retail  store  manager  is  confronted  by  a  de- 
mand for  more  rent,  it  means  that  he  must  in  turn  make 
more  profit.  Ordinarily  this  means  that  he  must  make  more 
sales,  and  turn  his  stock  more  rapidly.  In  order  to  accom- 
plish this,  factors  other  than  location  must  be  right.  The 
building  must  be  appropriate  for  the  business  that  is  to  be 
transacted;  perhaps  more  than  one  floor  or  story  should  be 
used;  at  any  rate,  the  floor  space  must  be  employed  as  ef- 
fectively as  possible.  Space  may  perhaps  be  economized  by 
the  use  of  special  fixtures  and  equipment.  Something  can 
often  be  done  to  provide  for  distributing  and  circulating  the 
incoming  crowds  of  people  to  all  parts  of  the  store.  In 
addition  to  these  things,  trade  must  be  attracted  to  the  store 
by  means  of  improved  window  displays,  advertising  of  va- 
rious kinds,  and  by  special  service  to  the  people  who  come  to 

IS4 


LOCATION  AND  RENT  1 55 

the  store.  Finally,  the  salespeople  must  do  their  work  in 
an  efficient  manner,  and  this  means  that  they  must  be  trained. 
All  sources  of  losses  to  the  store  must  be  checked  and 
stopped.  Through  such  methods  as  these  the  store  man- 
agers occupying  the  highest  priced  locations  are  able  to  make 
good;  and  it  is  by  study  of  such  methods  as  these  that  re- 
tail merchandising  can  be  improved  in  all  classes  of  loca- 
tions. 

The  first  step  in  putting  a  good  location  to  intensive 
use  is  the  erection  of  a  suitable  building.  In  most  cases, 
particularly  in  this  country,  such  work  is  performed  by  the 
owner  of  the  site.  This  fact  tends  to  prevent  the  highest 
efficiency  in  this  direction,  for  the  reason  that,  unless  the 
owner  of  the  site  is  himself  a  merchant,  or,  unless  he  turns 
over  all  of  the  planning  of  the  building  to  someone  who  is 
a  skilful  merchant,  several  architectural  features  desirable 
from  the  standpoint  of  merchandising  are  likely  to  be 
omitted.  Each  class  and  grade  of  merchandising  establish- 
ment demands  a  store  built  for  the  purpose.  Store  archi- 
tecture in  this  country  is  still  in  its  infancy.  Only  in  the 
case  of  certain  large  types  of  institutions,  such  as  depart- 
ment stores,  can  it  be  said  that  a  true  type  of  merchandis- 
ing building  has  been  developed  by  American  architects. 
Hence  the  average  architect  is  by  no  means  to  be  trusted 
to  plan  a  structure  perfect  for  store  purposes. 

The  building  should  be  constructed  to  harmonize  with 
the  ideals  of  its  particular  line  of  business  and  the  particular 
kind  of  trade  that  is  desired.  It  should  combine  beauty 
with  the  highest  type  of  utility  and  efficiency.  Ordinarily 
it  should  convey  the  impressions  of  solidity,  spaciousness, 
lightness,  and  airiness,  the  things  that  fit  in  with  the  present 
popular  ideas  of  art  and  sanitation.  It  needs  distinctiveness 
to  help  attract  attention.  Store  fronts,  like  millinery,  are 
subject  to  fashion,  hence  the  structure  of  the  building  should 


156  ECONOMICS  OF  RETAILING 

be  such  as  to  permit  of  easy  and  economical  changes  in  thi 
respect.  Further,  it  needs  to  be  built  so  as  to  reduce  fire 
risks  to  the  minimum  from  whatever  cause.  Thus  the 
building  should  combine  both  the  useful  and  the  beautiful. 

If  the  business  is  a  good  one,  a  merchant  may  feel  the 
necessity  for  more  space  than  that  offered  by  the  main  floor. 
If  the  additional  space  cannot  be  obtained  economically  on 
either  side,  he  must  use  space  either  below  or  above  th 
ground  floor. 

The  use  of  basements  as  adjuncts  to  main  floor  storej 
has  rapidly  increased  during  the  last  few  years.  The  older 
plan  was  to  use  the  basement  as  a  storage  place  for  goods, 
but  this  is  giving  way  very  generally  in  the  larger  stores  to 
the  "  bargain  basement,"  the  "  economy  basement,"  or  the^ 
"  subway  store  "  idea.  So  far  has  this  gone  that  there  is' 
hardly  a  large  department  store  of  any  consequence  but 
has  at  least  one  basement  in  use  for  displaying  and  selling 
goods,  and  a  few  of  the  very  largest  and  most  modern 
stores  have  two  basements,  one  under  the  other,  thus  utiliz- 
ing for  merchandising  purposes  a  space  upwards  of  25 
feet  deep  below  the  street  level. 

There  has  always  been  some  difficulty  in  getting  people 
to  go  to  the  basement  for  goods,  hence  merchants  com- 
monly use  "  bargains  "  or  other  inducements  to  draw  them 
there.  Frequently  the  entrance  to  the  basement  from  the 
first  floor  is  placed  at  a  point  of  considerable  distance  from 
the  main  building  entrances,  making  it  necessary  for  cus- 
tomers to  cross  the  main  floor,  and,  therefore,  to  pass  by 
much  of  the  main  floor  goods  displays  before  getting  to  the 
place  where  the  tempting  bargains  are  to  be  had.  In  other 
cases  people  are  attracted  to  basement  departments  by  direct 
entrances  from  the  street.  Modern  stores  must  be  planned 
to  make  the  sales  of  goods  easy,  and  to  increase  the  sales 
wherever  possible  in  such  ways  as  these. 


LOCATION  AND  RENT  1 57 

Upper  stories  offer  the  same  objection  as  the  basement, 
namely  the  difficulty  of  getting  customers  to  go  there. 
Good  comfortable  stairways,  capacious  elevators,  and,  more 
recently  the  use  of  escalators  have  been  introduced  to  make 
travel  from  the  ground  floor  to  other  parts  of  the  store 
easy  and  attractive  to  customers. 

As  the  height  from  the  ground  floor  increases,  the  diffi- 
culty of  getting  customers  also  increases.  A  two  story  store 
with  a  basement  may  be  able  to  get  along  with  stairways 
only,  but  this  seems  to  be  about  the  limit  for  foot  travel. 
The  use  of  elevators  even  in  this  case  adds  to  the  number 
of  customers  who  go  beyond  the  first  floor.  Beyond  the 
second  floor,  however,  either  elevators  or  escalators  seem 
to  be  absolutely  necessary  in  most  towns,  and  for  the  second, 
third,  and  fourth  floors  in  large  city  stores  the  escalator 
seems  to  do  better  than  the  elevator.  For  floors  above  the 
fourth,  the  elevators  serve  the  best.^  An  investigation  on 
the  comparative  merits  of  escalators  and  elevators,  as  re- 
ported by  a  concern  that  makes  and  sells  both  classes  of 
apparatus,^  showed  that  in  a  certain  store  having  escalators, 
53  per  cent  of  the  people  who  entered  the  store  circulated 
above  the  ground  floor,  while  in  other  stores  served  only 
by  stairways  and  elevators,  only  28  per  cent  traveled  above 
the  ground  floor. 

The  value  of  a  floor  in  a  building  is  not  entirely  depend- 
ent upon  the  number  of  people  who  come  to  it.  The 
ground  floor  is  likely  to  have  a  larger  proportion  of  shop- 
pers, or,  rather,  sight-seers,  than  any  other  floor.  While 
the  store  must  aim  to  interest  and  to  sell  goods  to  as  many 
of  such  persons  as  possible,  still  a  large  number  of  these 
do  not  buy.  Floors  other  than  the  ground  floor  are  likely 
to  be  visited  by  a  larger  proportion  of  bona  fide  customers 

iRing,  R.  S.,  "The  Escalator  for  Department  Stores,"  Archit.  &  Bldg.,  44:509i 
2  Otis  Elevator  Company. 


158  ECONOMICS  OF  RETAILING 

for  merchandise.  The  average  person  who  takes  the  trouble 
to  come  to  a  third  or  fifth  floor  is  Hkely  to  have  some 
definite  want  in  mind  that  the  store  has  a  good  chance 
to  satisfy.  But  in  spite  of  these  quahfications,  the  ground 
floor  is  far  more  valuable  than  any  other. 

The  apportionment  of  the  total  rent  to  the  various 
floors  in  actual  practice  depends  largely  upon  circumstances, 
but  in  all  cases  that  the  writer  has  observed,  a  much  larger 
proportion  has  been  charged  to  the  first  floor  than  to  any 
other.  The  following  figures  obtained  in  part  from  the 
service  department  of  the  Dry  Goods  Economist,  and  in  part 
from  figures  given  to  the  writer  by  executives  of  two  of  the 
largest  retail  concerns  in  the  country,  are  probably  typical. 

Table  Showing  Apportionment  of  Rent  of  Buildii^ 
TO  THE  Various  Floors  ^ 

Store  No.    123456789       10 

Basement     35     . .     25     . .     15     10     10     15  12^  15 

Main     Floor    65     65     50     60     45     45     50     40  35  35 

Second  Floor 35     25     30     25     25     20     20  20  20 

Third     Floor 10    15     10     10     15  15  10 

Fourth  Floor 10     10     10  10  10 

Fifth      Floor Ih  5 

Sixth     Floor    . 5 

As  indicated  by  the  table,  the  rental  value  of  stories  abovet 
the  first  decreases  rapidly  for  retail  purposes.  This  brings 
us  to  a  question  of  interest  in  the  larger  cities,  namely,  how 
high  up  will  retail  customers  go.  A  recent  writer*  hasfj 
stated  that  nine  stories  above  the  ground  with  two  base- 
ments beneath  probably  represents  the  profitable  limits. 
Other  stores  have  gone  somewhat  higher  but  with  what  suc- 
cess is  not  known.  This  problem  is  of  interest,  of  course, 
only  where  rents  are  very  high,  and  additional  space  very 

3  The  total  number  of  floors  in  each  store  is  shown  by  number  of  percentages 
given.  The  first  store  consists  of  ground  floor  and  basement,  the  second  of  first 
and   second  floors,   and   so   on. 

^Architectural   Record,    12:287.  j 


LOCATION  AND  RENT  159 

difficult  to  get.  Two  stories  and  a  basement  are  probably 
the  profitable  limits  for  most  stores  in  towns  under  25,000 
population;  and  in  larger  cities  under  most  conditions,  five 
or  six  stories  probably  represent  working  limits.  The  diffi- 
culties of  getting  large  numbers  of  customers  up  and  down 
quickly  are  too  great  for  further  upward  expansion.  Ex- 
cept where  space  is  very  valuable,  and  crowds  are  great, 
the  expense  of  running  elevators,  and  the  rent  of  the  space 
occupied  by  elevators  and  stairways,  more  than  counterbal- 
ance the  earnings  made  by  the  use  of  upper  floors. 

Additional  floor  space  is  frequently  obtained  by  the  ex- 
panding concern  by  building  a  balcony  or  mezzanine  floor 
part  way  around  the  main  floor  room.  This  can  be  done 
^nly  when  the  ceiling  is  high  enough.  Modern  store  archi- 
tecture nearly  always  provides  such  height  for  the  first  floor, 
and  the  mezzanine  floor  is  often  a  part  of  the  original  con- 
struction. Some  stores  use  this  sort  of  structure  with  great 
advantage,  generally  for  goods  that  might  otherwise  be  dis- 
played and  sold  either  on  the  second  floor,  or  in  the  base- 
ment, as,  for  instance,  bargains,  or  else  those  goods  that 
people  determine  in  advance  that  they  need  and  come  to  the 
store  for  the  express  purpose  of  buying,  such  as  furniture, 
stoves,  rugs,  carpets,  curtains,  etc. 

Many  small  stores  find  the  use  of  balconies  both  conven- 
ient and  profitable,  but  mistakes  in  their  structure  are  so 
often  made  that  their  full  value  is  seldom  realized.  One 
error  frequently  made  in  building  a  balcony  is  to  leave  it 
with  an  unfinished  appearance,  just  as  if  it  were  so  much 
staging.  To  some  customers  it  hardly  looks  safe  to  walk 
on.  It  lacks  the  appearance  of  stability  and  solidity.  Other 
shortcomings  noted  frequently  include  —  lack  of  provision 
for  proper  light,  poor  ventilation,  and  poor  or  uncomfort- 
able stairways.  Where  these  evils  are  remedied,  the  bal- 
cony has  proved  a  money  making  addition  to  many  stores. 


1 


l6o  ECONOMICS  OF  RETAILING 

Whatever  the  demands  may  be  for  more  floor  space,  ther< 
is  present  always  the  problem  of  using  in  an  effective  wa; 
space  already  controlled.  High  rents  force  this  problem  t 
the  front.  Store  arrangement  is  a  science  in  itself,  a  science 
that  is  only  imperfectly  understood  by  most  merchants. 
The  arrangement  of  the  store  is  often  the  factor  that  makes 
or  breaks  its  success.  It  calls  for  consideration  of  a  multi- 
tude of  details  among  which  only  a  few  of  the  most  impor- 
tant can  be  mentioned.  Provision  must  be  made  for  receiv- 
ing, storing,  and  handling  the  goods;  the  machinery,  en- 
gines, and  heating  plant  must  be  located  properly ;  and  pre- 
cautions against  fire  must  be  taken  at  every  step.  The  heat- 
ing, and  in  larger  stores,  the  cooling  plants  should  receive 
most  careful  attention.  Maintaining  a  uniformly  comfort 
able  temperature,  regardless  of  weather  conditions,  is  essen- 
tial. Provision  must  be  made  also  for  proper  ventilation 
of  all  parts  of  the  store  in  order  to  make  it  pleasant  for  cus- 
tomers and  a  good  workroom  for  salespeople.  Light  of  the' 
right  amount  and  kind  should  be  provided  for  each  depart- 
ment of  goods.  This  means  brilliant  light  for  such  depart- 
ments as  jewelry,  glass-ware,  and  china-ware,  and  subdued 
lights  for  such  departments  as  furniture,  and  so  on.  Pro- 
vision must  also  be  made  for  easy  and  thorough  cleaning  of 
all  parts  of  the  store.  Employees  must  be  accommodated 
with  locker  space,  lunch  room,  rest  rooms,  toilet  rooms,  and 
often  with  recreation  space.  The  store  must  provide  ample 
room  for  customers,  spacious  aisles,  large  stairways  and 
commodious  elevators.  The  entrances  must  be  made  large 
enough  to  let  crowds  in  and  out  easily.  The  store  should 
be  arranged  so  as  to  make  it  very  easy  for  customers  to 
get  from  one  point  to  another  in  the  store.  Accommoda- 
tions for  customers,  such  as  waiting  rooms,  reading  and 
writing  rooms,  telephone  booths,  and  toilets  must  be  pro- 
vided.    Places  and  fixtures  for  displaying  and  selling  mer-  7 


LOCATION  AND  RENT  l6i 

chandise,  and  for  making  change,  wrapping  parcels,  and  so 
forth  must  receive  prime  consideration.  Space  is  required 
for  assembHng  the  goods  that  are  to  be  delivered.  The  dis- 
posal of  refuse  and  waste  makes  its  demand. 

When  we  come  to  the  goods,  the  departments  must  be 
located  so  as  to  draw  the  most  trade.  The  goods  that  sell 
themselves  must  be  located  where  they  will  help  to  attract 
attention  to  other  goods.  Goods  not  in  customers'  minds 
must  be  located  where  they  can  be  seen.  The  merchandise 
must  be  arranged  in  groups  that  permit  of  making  a  sale 
of  more  than  one  article.  Goods  that  go  together  in  actual 
use  are,  therefore,  generally  grouped  together.  The  man 
who  comes  in  to  buy  a  collar  must  see  displays  of  neckwear, 
shirts,  handkerchiefs,  and  gloves,  and  these  departments 
should  lead  easily  to  hats,  clothing,  shoes,  and  so  on.  If 
the  store  is  small  and  the  number  of  people  who  come  in 
comparatively  great,  the  departments  must  be  so  arranged 
as  to  scatter  the  crowd  equally  over  all  parts  of  the  store 
by  placing  departments  making  the  most  numerous  sales  as 
widely  apart  from  each  other  as  possible. 

The  so-called  "  non-productive "  departments  of  the 
store,  such  as  the  offices  and  places  for  keeping  records  and 
accounts,  must  be  located  in  odd  spaces  not  taking  up  room 
valuable  for  sales  purposes.  This  may  mean  placing  them 
in  the  back  part  of  the  store,  on  a  balcony  up  out  of  the 
way,  or  on  an  upper  floor  where  space  is,  as  we  have  seen, 
much  less  valuable  for  selling  work. 

Storage  place  for  the  surplus  stocks  of  goods  is  always 
a  problem  wherever  rents  are  high.  Special  equipments  are 
sometimes  built  permitting  a  maximum  of  storage  under 
counters  and  on  shelves.  For  the  bulk  of  the  surplus  stock, 
an  upper  floor  is  the  usual  solution,  with  an  occasional  use 
of  a  storage  building  in  a  low  rent  part  of  the  town.  The 
distant  warehouse  may  have  the  advantage  of  low  rent,  but 


l62  ECONOMICS  OF  RETAILING 

it  also  has  the  disadvantage  of  high  expense  in  transferring 
goods  quickly  to  the  main  store.  All  of  these  matters  must 
be  considered. 

If  the  profits  of  the  store  depend  upon  quick  sales  and 
large  volume,  it  is  clear  that  everything  should  be  done  to 
handle  crowds  of  people  and  supply  their  demands  as  ade- 
quately and  as  quickly  as  possible.  Prospective  customers 
in  such  stores  must  be  helped  by  the  arrangement  of  the  store 
and  by  the  displays  as  well  as  by  salespeople.  Open  count- 
ers, easily  read  price  tickets,  printed  statements  about  the 
goods,  and  similar  devices  assist  in  this  direction.  The 
making  of  change  and  the  wrapping  of  parcels  should  be  re- 
duced to  such  system  as  will  save  every  possible  second  of 
time.^  Salespeople  need  to  show  the  goods  in  the  quickest 
possible  ways  compatible  with  good  salesmanship,  and  to  be 
prepared  to  tell  in  short,  pithy,  clear-cut  sentences  the  things 
that  customers  are  likely  to  want  to  know  about  the  goods. 
Above  all,  they  need  deft  hands,  quick  eyes,  ready  minds, 
and  unfailing  patience  and  good-will  for  every  individual  in 
the  passing  throng. 

In  addition  to  all  these  problems  of  arrangement  and 
salesmanship  and  of  even  greater  importance,  is  the  problem 
of  making  the  store  attractive  in  all  its  details.  In  this 
respect  a  store  differs  from  a  manufacturing  plant.  The  lat- 
ter may  be  planned  solely  in  the  interests  of  efficiency  of 
production,  but  the  store  must  be  planned  to  please  cus- 
tomers as  well  as  to  facilitate  the  handling  of  goods. 

A  great  deal  of  attention  needs  to  be  given  in  arranging 
the  store  display  so  as  to  make  it  most  effective.  Goods 
must  be  placed  where  they  can  be  seen.  The  principle  is 
that  the  display  of  merchandise  should  fall  largely  within 
the  average  line  of  vision.  Experiments  need  to  be  per- 
formed to  determine  just  what  this  is,  but  it  may  be  safely 

5  See   Appendix   VI,   "  Methods    of   Handling   Cash,    Credits   and    Sold    Goods." 


LOCATION  AND  RENT 


163 


stated  here  that  most  people  on  passing  through  a  store  no- 
tice goods  only  when  they  are  located  more  than  two  feet 
and  less  than  seven  feet  above  the  floor.  This  means  that 
the  display  must  be  planned  within  this  line  or  belt  of  vision 
five  feet  wide.  Display  above  or  below  these  limits  seems 
either  to  remain  unnoticed  or  to  confuse  the  customer.  As 
a  rule,  whatever  is  done  above  and  below  these  limits,  must 
be  for  purely  decorative  purposes,  or  to  serve  as  a  back- 
ground for  the  regular  goods  that  are  displayed  within  the 
line  of  vision. 

Within  this  line  of  vision  there  are  possibilities  for  great 
art  in  arranging  the  display  of  goods.  For  example,  one 
may  seek  to  get  the  colors  of  the  goods  into  appealing  re- 
lationships, to  get  the  forms  of  the  goods  into  harmonious 
groups,  and  to  get  an  effect  that  is  not  only  pleasing  to  the 
eye  but  attractive  to  the  customer's  pocketbook.  The  one 
who  arranges  the  store's  displays  has  the  possibility  of  exer- 
cising talent  similar  to  that  of  a  painter  or  sculptor,  but 
his  combinations  must  differ  from  the  picture  or  sculptured 
group  in  this  respect,  that  the  details  rather  than  the  en- 
semble must  stand  out  clearly  to  catch  the  customer's  atten- 
tion. The  art  is  introduced  to  set  off  the  goods  effectively 
so  that  they  may  appeal  to  purchasers  and  be  sold.  Order, 
symmetry,  harmony,  and  other  fundamental  principles  of 
art  are  essential  to  good  store  display,  but  the  art  must  be 
for  business'  sake.  Everything  beyond  the  direct  line  of 
vision  in  a  store  is  to  the  customer  what  the  frame  and  the 
background  of  a  painting  are  to  the  painter  and  to  the  one 
who  looks  at  the  painting.  This  frame  or  background  needs 
to  be  in  keeping  with  the  central  object,  harmonious  yet  sub- 
dued, not  attractive  in  itself,  but  helping  to  make  the  goods 
displayed  as  attractive  as  their  true  natures  will  permit. 

Much  valuable  space  in  a  store  can  be  saved  in  many  cases 
by  using  standard  sizes  in  all  equipment,  such  as  cases,  cab- 


1 64  ECONOMICS  OF  RETAILING 

inets,  and  cartons  for  the  goods,  counters  and  shelves  of  thi 
right  width  and  height,  the  right  width  of  aisles  for  custom- 
ers on  one  side  and  for  clerks  on  the  other  side.  Common 
obstructions  such  as  pillars,  angles  in  the  walls,  stairways 
and  so  on,  present  difficult  problems  in  store  planning  that 
must  be  solved  according  to  the  best  judgment  of  the  man- 
ager. 

Recently  much  has  been  done  in  the  way  of  devising  fix- 
tures that  economize  space.  The  portable  and  sectional  types 
of  store  apparatus  and  equipment  are  aimed,  partly  at  least, 
to  aid  in  this  direction.  Special  cabinets  have  been  devised 
to  hold  a  maximum  amount  of  goods  in  a  minimum  amount 
of  space  for  such  merchandise  as  gloves,  patterns,  laces, 
embroideries,  trimmings,  hosiery,  shoes,  hats,  and  clothing 
of  all  kinds.  Stands  and  frames  using  a  comparatively  small 
amount  of  floor  space  have  been  devised  to  hold  stocks  of 
rugs,  curtains,  pictures,  picture  frames,  tools,  oilcloths,  gar- 
ments, and  many  other  things.  Shelving  in  a  modern  store 
is  built  so  as  to  waste  no  space.  The  distance  between 
shelves  corresponds  exactly  to  the  height  of  the  cartons, 
packages,  cans,  or  other  forms  in  which  goods  are  con- 
tained. The  shelving  itself  is  made  of  no  thicker  material 
than  is  necessary  to  support  the  burden.  Upright  supports 
of  the  shelves  are  arranged  in  such  a  way  as  to  take  up  very 
little  space.  Other  fixtures  are  similarly  planned.  But  as 
noted  already,  every  detail  is  planned  with  its  artistic,  as  well 
as  its  economic  possibilities  in  view.  Where  the  two  con- 
flict seriously,  the  economic  must  give  way  in  part  at  least 
to  the  artistic.  The  walls  and  space  beneath  the  floors  is 
used  for  heating  flues,  air  shafts,  as  well  as  electric  con- 
duits. A  bright  country  storekeeper,  who  must  use  a  stove 
to  heat  his  store,  runs  the  smoke  pipe  directly  down  through 
the  floor  and  underneath  it  until  it  reaches  the  wall.     Here 


LOCATION  AND  RENT  165 

it  is  allowed  to  rise,  and  the  draught  seems  to  be  perfectly 
satisfactory.  In  this  way  he  has  eliminated  the  unsightly 
stove  pipe  and  saved  space.  Pneumatic  tubes,  cash  and 
bundle  carriers,  wiring,  and  other  devices  are  not  permitted 
to  take  up  too  much  valuable  selling  space. 

A  virtual  saving  in  space  is  accomplished  by  careful  stock 
keeping  and  buying  methods.  The  quantity  of  each  article 
kept  on  hand  is  reduced  to  a  minimum,  thus  saving  shelf  or 
storage  room,  and  the  variety  is  increased  by  the  addition  of 
other  desirable  lines.  This  involves  buying  often,  perhaps 
daily,  and  a  careful  watching  of  the  state  of  the  stock  so  as 
to  prevent  running  out,  but  it  economizes  space. 

Of  the  methods  used  in  attracting  trade  we  can  say  but 
little  here.  The  statement  is  sometimes  made  that  less 
money  need  be  expended  for  advertising  in  a  good  location 
than  in  a  poor  one.  This  is  probably  true  if  one  seeks  to  get 
the  same  volume  of  business  in  both  cases.  If  it  is  neces- 
sary to  expend  a  certain  sum  of  money  for  publicity  to  get  a 
certain  amount  of  business  in  a  poor  location,  it  is  clear  that 
the  same  volume  can  be  obtained  in  a  better  location  with  a 
smaller  expenditure  for  advertising.  This  does  not  mean 
that  merchants  spend  less  for  advertising  in  the  better  loca- 
tions. The  reasons  for  advertising  are  as  strong  in  the  bet- 
ter location  as  they  are  in  the  poorer,  the  object  in  each  case 
being  to  increase  to  the  maximum  the  volume  of  sales. 
Hence  one  does  not  ordinarily  find  a  diminution  of  adver- 
tising outlay,  or  even  the  percentage  of  advertising  to  sales 
decreasing  on  passing  from  poorer  to  better  locations.  The 
principle  governing  advertising  as  well  as  the  use  of  any 
other  factor  is  its  possibility  of  bringing  in  a  return  more 
than  equal  to  the  expenditure  or  outlay.  It  is  entirely  possi- 
ble that  in  a  great  number  of  cases,  a  larger  proportion  of 
advertising  expense  will  be  found  profitable  in  a  good  than 


l66  ECONOMICS  OF  RETAILING 

in  a  poor  location.  In  the  poor  location  2  per  cent  of  sales 
may  be  found  the  profitable  limit,  while  4  per  cent  of  sales 
may  be  nearer  the  limit  in  the  better  locations.  This  is  a 
matter  upon  which  no  rule  can  be  given.  Each  manager 
must  work  out  the  possibilities  of  his  own  business  and  the 
means  of  promoting  it. 

In  recent  years  a  great  deal  of  progress  has  been  made  in 
this  country  in  the  matter  of  window  displays.  Frequently 
increases  in  business  are  directly  traceable  to  the  introduc- 
tion of  better  store  fronts,  show  windows,  and  better  win- 
dow trimming.  The  tendency  seems  to  be  to  use  for  dis- 
play purposes  every  available  inch  of  frontage.  In  some  |l 
cases  this  display  space  is  increased  by  recessing  the  front,  1 
building  it  in  the  form  of  a  vestibule  or  arcade,  and  by  con- 
structing island  display  cases.  Much  of  this  work  done  by 
modem  stores,  particularly  in  the  larger  cities,  is  costing  a 
great  deal  of  money,  but  it  is  held  by  all  that  such  expendi- 
tures are  well  worth  while.  The  show  window  depends  for  | 
its  value  upon  the  number  of  people  who  pass  by,  but  there 
is  hardly  a  town  so  small,  or  crossroads  store  so  insignifi- 
cant, as  to  make  unnecessary  or  valueless  the  trimming  of 
windows. 

Some  idea  of  the  value  of  show  windows  may  be  gained 
from  the  fact  that  a  Chicago  department  store  having 
twenty-one  windows  charges  its  window  trimming  depart- 
ment nearly  $500.00  per  day,  distributed  as  follows : 

2  Island    windows    at  $100.00  per  day 


2  Windows 

20.00  per  day 

8  Windows 

16.00  per  day 

2  Windows 

15.00  per  day 

5  Windows 

10.00  per  day 

1  Window 

'          9.50  per  day 

1  Window 

'          5.00  per  day 

LOCATION  AND  RENT  167 

These  amounts  are  in  turn  charged  to  the  departments 
of  the  store  using  the  respective  windows.^  A  large  de- 
partment store  in  Boston  charges  its  fifty  windows  the  sum 
of  $306.00  per  day  J  These  sums  of  money  represent  the 
windows'  burden.  They  must  earn  at  least  this  much  for 
the  store. 

A  large  department  store  in  Chicago  is  reported  to  ex- 
pend over  $150,000  per  year  in  the  trimming  of  its  win- 
dows. Six  hundred  Chicago  druggists  outside  of  the  loop 
district  make  a  charge  of  from  $4  to  $15  per  window  per 
week  for  the  privilege  of  displaying  patent  and  proprietary 
goods.  Druggists  and  others  within  the  loop  district  get  as 
high  as  $100  per  week  from  demonstrators  who  use  this 
means  of  attracting  attention  to  their  goods.  Figures  for 
the  loop  district  of  Chicago  are,  however,  abnormal  and  in 
no  way  comparable  with  average  store  conditions.  The 
figures  of  the  Chicago  druggists  outside  the  loop  come  nearer 
representing  average  values  in  most  towns  of  10,000  popu- 
lation and  up.  In  towns  smaller  than  this  the  values  of 
the  show  windows  are  somewhat  less.  A  recent  statement 
by  one  who  has  had  opportunities  for  wide  observation,  is 
that  the  average  value  of  display  windows  the  country  over 
is  not  far  from  $10  per  week.^ 

The  front  part  of  the  store  is  the  most  valuable  in  all 
ordinary  cases.  The  window  space  ranks  first  and  highest, 
the  departments  nearest  the  entrance  come  second,  and  so  on 
back.  This  is  true  largely  because  it  is  so  difficult  to  get 
customers  who  come  to  the  store  to  circulate  far  beyond 
the  entrance.  A  manager  of  a  department  store  has  in- 
formed the  writer  that  nearly  half  of  the  people  who  enter 
his  store  never  go  beyond  a  radius  of  50  feet  from  the  main 

6  The  figures  are  for  the  Chas.  A,  Stevens  Store,  and  are  taken  from  the  Mer- 
chants' Record  and  Show   Window,  April,  1915. 

7  Wm.    Filene's   Sons   Company,   Boston.     Figures   given   in   Dry   Goods  Econo- 
mist, May  24,  1913, 

8  C.  W.   Hurd  in  Printers'  Ink,  Aug.   31,  1911. 


1 68  ECONOMICS  OF  RETAILING 

entrance,  and  this  in  spite  of  the  fact  that  he  has  arrange( 
his  departments  so  as  to  attract  trade  farther  back.  Thij 
case  is  not  given  as  typical  but  rather  to  illustrate  that  th< 
space  on  a  store  floor  is  not  equally  valuable,  hence  the  ren^ 
burden  should  not  be  distributed  among  all  departments  di- 
rectly on  the  basis  of  the  number  of  square  feet  occupied.! 

Various  methods  of  distributing  the  rent  charge  for  a 
floor  are  practiced.  In  some  cases  this  charge  is  fixed  in 
proportion  to  the  square  feet  occupied,  in  others  to  the  gross 
sales  of  the  department,  in  others  to  the  gross  profits,  in  still 
others  the  rent  charge  is  prorated  on  the  basis  of  accessi- 
bility to  customers,  and  in  some  stores  several  or  all  of  these 
conditions  are  considered.  The  last  named  is  probably  the 
fairest  method,  for  all  of  these  methods  individually  are  sub- 
ject to  qualification  and  exception.  Most  distributions  of; 
rent  over  floor  space  are  probably  more  or  less  arbitrary. 

It  may  be  of  interest  in  this  connection  to  note  what 
methods  experts  use  in  determining  for  purposes  of  taxa- 
tion the  relative  values  of  the  different  parts  from  front 
to  back  of  business  real  estate.  Space  will  permit  but  a 
brief  statement.  There  are  several  assessment  systems  in 
actual  use,  differing  somewhat  in  detail,  and  in  methods  of 
computing  the  values,  but  all  aim  at  the  same  thing  —  equit- 
able assessment  of  city  lots  of  varying  depths.  Among 
these  systems  are  the  following:  The  Hoffman-Neill  rule, 
the  Lindsay-Bernard  rule,  the  Newark  plan,  and  the  Cleve- 
land plan,  also  called  the  Somers  rule.  In  all  of  these  sys- 
tems, excepting  the  Lindsay-Bernard  rule,  the  standard  lot 
is  considered  as  100  feet  deep.  The  value  of  lots  of  depths 
differing  from  the  standard  100  foot  lot  has  been  worked 
out  in  each  of  these  systems.  To  illustrate,  a  few  figures 
will  be  given  as  obtained  by  the  Hoffman-Neill  rule  used 
in  New  York  City,  and  the  same  figures  obtained  by  the 
Newark,  and  the  Cleveland  or  Somers  plans, 


LOCATION  AND  RENT 


169 


Value  of  City  Business  Lots  of  Different  Depths 

Based  on  a  Percentage  of  the  Value  of  a  Standard 
Lot  One  Hundred  Feet  Deep  ^ 


Feet 

Hoffman-Neill 

Newark 

Cleveland  or 

)eep 

Rule 

Plan 

Somers  Plan 

100 

100.00% 

100.00% 

100.00% 

1 

6.76 



3.1 

5 

17.32 



14.35 

10 

25.98 

25 

25.0 

20 

38.99 

41 

41.0 

30 

49.47 

54 

54.0 

40 

58.49 

64 

64.0 

50 

66.67 

72 

72.5 

60 

74.20 

80 

79.5 

70 

81.70 

86 

85.5 

80 

87.73 

91 

90.9 

90 

94.01 

96 

95.6 

100 

100.00 

100 

100.0 

125 

109.00 

109 

109.0 

150 

117.00 

121 

U5.0 

200 

130.00 

133 

122.0 

Note  should  be  taken  that  under  all  three  rules  the  value 
of  the  first  10  feet  is  considered  to  be  worth  25  per  cent  of 
the  total  100  feet  in  the  standard  lot.  The  first  20  feet  has 
a  value  in  all  these  rules  of  about  40  per  cent  of  the  total. 
The  front  half  of  the  lot,  that  is  the  first  50  feet  nearest 
the  street,  is  considered  worth  two-thirds  of  the  whole  lot 
in  one  rule  and  more  than  that  in  the  other  two.  Now  what 
is  true  for  the  lot  is  true  for  floor  space,  and  if  these  per- 
centages are  fairly  representative  for  the  one  they  are  for 
the  other.     It  is  not  urged  that  these  percentages  should  be 

9  See  — 

Report  of  Department  of  Taxes  and  Assessments  of  New  York  City,  1913, 
Appendix. 

Somers'    "  Unit   System   of   Realty   Valuation,"   Cleveland, 

Bernard's  "  Some  Principles  and  Prooiems  of  Real  Estate  Valuation,"  Bal- 
timore. 
Also,  see  — 

Rawles,  Wm.  A.,  "  Classification  of  Land  for  Purposes  of  Taxation,"  an 
address  delivered  before  a  conference  on  taxation  in  Indiana,  held  Feb- 
ruary 5  and  6,  1914;  published  in  Indiana  University  Bulletin,  Vol.  Xll, 
No.   4,  pp.   137-163. 


170  ECONOMICS  OF  RETAILING 

used  by  merchants  in  their  store  without  qualificatio: 
They  are  simply  given  here  as  an  illustration  of  the  sort  o 
studies  that  need  to  be  worked  out  in  the  various  kinds  o 
retail  businesses,  studies  that  will  result  in  accurate  figure 
on  such  a  problem  as  the  distribution  of  rent  over  floo 
space. 

Intensive  use  of  location  must  include  many  othe 
things,  only  a  few  of  which  can  be  mentioned  in  this  out 
line.  High  rents  force  store  managers  to  exert  every  means 
to  bring  people  to  the  store  and  to  increase  sales.  Adver- 
tising has  been  mentioned  already  as  one  of  these  means 
Perhaps  under  this  head  should  be  included  such  features 
as  "  special  sales,"  "  cut  prices,"  "  loss  leaders,"  and  special 
service  to  people  who  come  to  the  store  —  service  in  the 
form  of  music,  moving-picture  shows,  lectures,  art  exhibits, 
demonstrations,  lunch  and  refreshment  departments,  news 
bulletins,  baseball  score  boards,  etc.  All  of  these  tend  to 
make  the  store  a  center  of  interest  to  shoppers,  both  male 
and  female.  The  modern  store  is  almost  as  much  an  amuse- 
ment place  as  it  is  a  merchandising  establishment,  and  there 
are  many  people  who  prefer  shopping  to  most  regular  enter- 
tainments. This  is  the  result  of  the  competition  for  the 
patronage  of  the  public  in  central,  high  rent  locations. 

Something  further  can  sometimes  be  accomplished  by 
encouraging  the  use  of  the  telephone  for  all  who  cannot 
come  to  the  store,  the  establishment  of  a  mail  order  depart- 
ment, and  promotion  of  sales  by  various  forms  of  personal 
solicitation,  ranging  from  sending  letters  to  customers  to 
sending  a  personal  representative  from  house  to  house.  All 
these  methods  help  to  increase  the  sales  and  help  to  reduce 
that  part  of  the  overhead  expense  due  to  the  rent  item. 

Finally,  and  most  important,  as  a  means  of  keeping  ahead 
of  the  high  rent  charge  is  the  employment  and  training  of 
competent  salespeople.     Contrary  to  the  opinion  of  many, 


LOCATION  AND  RENT  171 

the  importance  of  good  salespeople  does  not  diminish  on 
passing  from  poorer  to  better  locations.  In  a  good  loca- 
tion the  salesperson's  efforts  are  usually  specialized  in  selling 
some  one  particular  line,  or  part  of  a  line,  or  to  a  particular 
class  of  customers.  On  the  whole,  each  salesman  in  such 
a  location  has  a  greater  opportunity  for  exercising  his  abil- 
ity. Consider  shoe  selling  as  an  example.  Salesmen  aver- 
age volumes  of  sales  ranging  from  $2,000  to  $10,000  per  year 
in  small  towns.  The  average  in  good  locations  in  the  large 
cities  is  over  $16,000  per  year.^^  In  the  latter  locations 
there  is  an  opportunity  to  sell  more  —  but  there  is  also  the 
opportunity  to  make  more  mistakes.  Quick,  intelligent  ser- 
vice and  accurate  salesmanship  are  essentials  for  such  loca- 
tions as  much  as  for  any  other,  and  it  is  among  such  stores 
that  one  finds  the  unusual  salesman  —  the  shoe  salesman, 
for  example,  who  is  able  to  average  sales  of  $30,000  or  more 
per  year. 

The  importance  of  salesmanship  has  been  discussed  in 
Chapter  VI.  It  is  simply  mentioned  here  to  point  out  its 
relationship  to  the  location  factor  in  a  store. 

10  Bulletin  No.  1,  Bureau  of  Business  Research,  Harvard  University,  pp.  12-13. 


CHAPTER  XI 

HOW  RETAIL  PRICES  ARE  FIXED 

The  aim  of  the  retailer,  as  well  as  of  all  others  who  en- 
gage in  business,  is  to  realize  a  profit  from  his  operations. 
His  success  is  measured  very  largely  by  the  amount  of  profit 
that  he  makes.     Prices,  therefore,  tend  to  be  fixed  at  the 
i  point  that  will   bring  the  highest  net   return.     In   other 
'words,  retail  dealers  charge  "  what  the  traffic  will  bear." 

But  while  the  retailer  places  the  price  mark  on  the  goods, 
it  would  not  be  correct  to  assume  that  he  makes  the  price, 
except  in  so  far  as  he  interprets  correctly  all  of  the  influ- 
ences affecting  values  in  his  community  and  makes  it  in  ac- 
cordance with  his  judgment  of  those  influences.  Price,  as 
we  shall  see,  is  the  resultant  of  many  forces  operating  in 
various  ways  and  with  various  degrees  of  strength. 

,Qiief__amang  the  forces  or  factQr&_that  influence  retail  J 
prices-^reLthe  costs  of  the  goods,  the  costs  of  selling,  the 
desirability  of  the  goods  from  the  standpoint  of  the  con- 
sumer, the  competition  of  other  retailers,  custom  or  habit, 
personal  salesmanship,  and  an  ethical  element  or  tendency 
to  fair  play  among  both  buyers  and  sellers. 

The  costs  of  the  goods  and  the  costs  of  selling  set  the 
lower  limit  below  which  the  selling  price  may  not  fall  with- 
out loss  to  the  store.  However  severe  the  competition  may 
be,  whatever  the  policies  of  selling  adopted,  the  retailer  must 
get  all  of  his  costs  back  or  fail  in  business.  For  purposes 
of  clearance  or  advertising  some  goods  may  be  sold  below 
the  cost  point,  but  deficits  so  incurred  must  be  made  up  in 

172 


HOW  RETAIL  PRICES  ARE  FIXED  173 

the  general  sales  levels.  It  is  obvious,  then,  that  th^  retailer 
should  know  his  costs  accurately.  An  estimate  made  too 
high  may  lead  him  to  think  in  cases  of  keen  competition  that 
all  is  over  with  him  before  he  is  really  in  danger.  On  the 
other  hand,  costs  estimated  lower  than  they  really  are  may 
lead  to  a  feeling  of  security  where  danger  really  exists. 
Nearly  every  printed  article  that  has  appeared  during  the 
last  five  years  on  this  subject  has  either  taken  for  granted  or 
has  presented  facts  to  show  that  a  great  many  retailers  do 
not  actually  know  what  their  costs  are,  and  that  they  have 
operated  their  business  upon  guesses  or  estimates  that  were 
in  many  instances  far  from  correct.  Many  examples  of 
merchants  who  believed  that  they  were  making  good  safe 
margins  of  profit  but  who  were  really  moving  towards  bank- 
ruptcy because  of  too  low  estimates  of  costs  have  been  cited. 
A  large  proportion  of  failures  in  retail  stores  are,  no  doubt, 
due  to  this  cause.  It  is  certain  that  a  very  large  proportion 
of  the  retail  merchants  who  are  thrown  into  bankruptcy 
have  very  imperfect  accounting  systems  or  records  of  their 
business. 

But  costs  are  not  the  only  considerations  in  fixing  prices. 
It  is  even  held  by  many  that  price  fixing  based  upon  costs 
would  be  neither  desirable  nor  fair  in  all  cases.  When  the 
producer  has  erred  and  has  expended  twice  as  much  in  mak- 
ing an  article  as  he  should,  or  when  the  dealer  has  mistak- 
enly paid  more  for  an  article  than  others  could  obtain  it  for, 
it  would  not  be  just  that  the  burden  of  such  errors  should 
be  passed  on  to  the  consumers,  nor  would  it  be  passed  on 
to  the  consumers  under  free  competition.  Each  should 
stand  the  losses  due  to  mistaken  judgment  or  other  like  per- 
sonal mistakes  caused  by  himself.  On  the  other  hand,  if 
the  buyer  of  a  store,  or  the  producer  before  him,  were  able 
to  bring  into  the  market  a  lot  of  goods  at  a  much  lower 
figure  than  normal  costs  of  production  and  distribution,  the 


174  ECONOMICS  OF  RETAILING 

consumer  has  not  thereby  earned  any  opportunity  to  enjoj 
those  goods  at  cost.  The  surplus  thus  produced  is  the  legitij 
mate  profit  or  reward  to  the  producer  or  to  the  buyer  for  hij 
special  efficiency.  To  what  extent  such  cases  occur  in  every^ 
day  business  it  is,  however,  impossible  to  say. 

The  dealer  uses  his  knowledge  of  costs  only  in  determid 
ing  the  lower  limit  of  profitable  selling.     The  exact  point  aj 
which  the  price  shall  be  set  on  a  particular  article  must 
determined  by  other  considerations.     Costs  of  selling  serv< 
merely  as  a  guide  as  to  what  the  retailer  shall  purchase  an< 
as  to  what  the  upper  limits  of  his  purchase  prices  must  be. 
Knowing  his  costs  the  retailer  can,  to  a  large  extent,  elimi- 
nate unprofitable  lines  from  his  stock.     Thus,  while  serving 
only  as  a  guide,  the  knowledge  of  costs  is  a  most  important 
thing  to  the  retailer  who  wishes  to  succeed  in  business. 

The  desirability  of  an  article  to  the  customer  is  a  very, 
important  factor  in  price  fixing.  It  is  because  people  wanti 
goods  that  they  come  to  stores  for  them  and  the  strength 
of  their  wants  helps  to  determine  what  they  will  pay  for 
them.  It  may  be  the  usefulness,  the  beauty,  the  uniqueness, 
or  any  one  of  a  hundred  other  qualities  that  appeals  to  the 
customer,  but  whatever  it  may  be,  it  is  this  desire  that  causes 
the  customer  to  conclude  to  give  up  his  money  and  whatever 
other  goods  his  money  might  have  bought,  in  order  to  pos- 
sess these  particular  goods. 

The  strength  of  demand  measured  by  the  amount  that 
customers  will  be  willing  to  pay  for  any  article  is  depend- 
ent upon  four  things : 

1.  The  strength  of  the  customer's  desire  for  it. 

2.  Possession  of  money  or  means  to  buy  it. 

3.  The  relative  strength  of  the  desire  for  this  article 
compared  with  the  desires  the  customer  may  have  for  other 
articles  that  his  money  or  means  can  purchase  for  him. 


HOW  RETAIL  PRICES  ARE  FIXED  175 

4.  The  knowledge  of  what  this  article  or  similar  articles 
can  be  obtained  for  elsewhere. 

No  goods  could  be  sold  unless  customers  desired  them. 
Desires  must  be  taken  for  granted.  In  fact,  all  human  be- 
ings have  a  multitude  of  desires,  more  than  most  of  them 
can  ever  hope  to  have  satisfied.  The  best  that  any  indi- 
vidual can  do  is  to  satisfy  one  at  a  time  in  something  like 
the  order  of  intensity.  The  desire  for  any  particular  article 
in  the  customer's  mind  nearly  always  has  competing  desires 
for  other  articles,  possibly  widely  different  in  nature.  The 
price  that  he  will  pay  for  any  given  article  measures  how 
much  of  the  other  articles  he  is  willing  to  sacrifice.  That 
is  to  say,  in  buying  any  article,  a  person  does  not  simply 
give  up  his  money  but  he  gives  up  the  opportunity  to  get 
such  other  goods  as  his  money  would  buy.  Economists 
have  called  this  opportunity  cost.  It  is  clear  that  the  price  ' 
of  an  article  must  not  be  placed  above  the  point  at  which  cus- 
tomers w^ill  prefer  to  spend  their  money  for  other  goods,  or 
there  will  be  no  sales  of  this  article. 

The  work  of  the  retailer  and  his  salespeople,  and  of  the 
advertising  given  to  the  goods  offered  in  a  store,  must  not 
be  overlooked  in  discussing  the  strength  of  ''  consumer  de- 
mand," particularly  for  goods  that  are  not  well  known  to  the 
customers.  It  is  a  well  established  principle  of  psychology 
that  we  can  desire  only  that  w^hich  we  know  something 
about,  and  the  thing  for  which  desire  is  the  strongest  is  the 
central  thing  in  the  mind.  Strong  human  wants,  such  as 
that  for  food,  when  hunger  presses,  force  themselves  into 
the  center  of  attention,  while  other  wants  present  themselves 
in  the  orderly  course  of  thought.  A  person  tends  to  value 
in  proportion  to  his  knowledge  of  it,  and  of  its  practical 
significance  to  him.  Salesmanship  consists  in  teaching  cus- 
tomers about  the  goods  of  the  store,  their  qualities,  their 


176  ECONOMICS  OF  RETAILING 

uses,  and  the  satisfactions  they  provide.     In  this  way  con 
cepts  concerning  the  goods,  are  built  up  in  the  customers' 
minds,  and  wants  for  them  are  developed  and  strengthened 
Not  only  are  demands  for  new  goods  thus  created,  but  by 
such  processes,  the  customers  are  educated  up  to  a  willing 
ness  to  pay  more  for  a  similar  article  than  they  otherwise 
would.     The  pre-existent  desire  for  the  article  is  made  very 
much  stronger,  not  only  absolutely  but  relatively,  than  the 
desire  for  other  goods.     The  salesman's  knowledge  of  his 
goods,  his  way  of  telling  what  the  customer  wants  to  know, 
his  faith  in  his  goods,  and  his  "  nerve  "  in  asking  a  price 
go  far  towards  fixing  in  the  mind  of  the  customer  a  desire 
for  the  article  at  the  price  named. 

In  addition  to  the  competition  of  desires  for  various 
goods  within  the  individual's  own  mind,  there  is  the  famil- 
*^«iar  competition  of  the  world  of  business,  the  competition  of 
dealers  offering  the  same  or  similar  articles.  In  times  past 
the  most  effective  competition  among  retailers  was  among 
those  whose  stores  were  located  close  to  each  other,  but  dur- 
ing the  last  few  years,  particularly  in  the  smaller  towns  and 
the  country,  the  competition  of  the  big  stores  in  the  large 
cities  and  of  the  mail  order  houses  has  pushed  closely  up  to 
front  rank.  Aside  from  cut-throat  competition  whose  pur- 
pose it  is  to  kill  off  or  to  drive  trade  rivals  out  of  business 
entirely,  competition  usually  results  in  forcing  prices  down 
close  to  cost  levels  with  possibilities  of  net  profit  for  the 
more  efBcient  dealers  only.  Price  levels  will  tend  to  become 
fixed  at  a  place  above  which  no  dealer  can  sell  very  many 
goods  nor  continue  his  sales  for  very  long. 

When  customers  are  ignorant  of  what  other  retailers 
are  offering  certain  goods  for,  a  retailer  may  sometimes  keep 
up  his  prices  for  a  time  in  the  face  of  competition.  But 
selling  goods  for  more  than  other  dealers  get  is  likely  to 
provoke  considerable  ill  will  when  discovered,  and  it  is  re- 


HOW  RETAIL  PRICES  ARE  FIXED  177 

markable  that  this  feeling  is  likely  to  vary  inversely  as  the 
value  of  the  article.  Nothing  seems  so  irritating  to  the 
average  customer  as  to  find  out  that  he  has  been  charged 
fifteen  cents  for  an  article  that  other  dealers  are  selling  for 
ten  cents,  while  an  overcharge  of  $5  on  a  $25  or  $30  coat 
or  garment  may  create  but  little  resentment.  Such  details 
need  the  careful  attention  of  the  retailer. 

Competition  that  drives  the  price  levels  below  the  costs 
of  the  goods  plus  the  costs  of  selling  tends  either  to  drive 
dealers  out  of  business,  or  to  drive  them  together  into  com- 
binations having  for  their  purpose  the  establishment  of  more 
profitable  prices.  The  price  cutter  is  to  the  regular  retailer 
what  the  scab  is  to  the  trade  unionist.  The  public  has  al- 
ways opposed  such  combinations  and  understandings  among 
dealers  while  excusing  if  not  favoring  similar  corribinations 
among  laborers.  It  has  always  been  feared  that  dealers' 
combinations,  if  allowed  at  all,  would  lead  speedily  to  mo- 
nopoly and  monopoly  prices.  One  of  the  most  promising 
movements,  however,  for  the  elimination  of  cut-throat  com- 
petition, particularly  the  kind  that  grows  out  of  ignorance  of 
what  it  costs  to  do  business,  is  the  movement  among  busi- 
ness organizations  to  teach  all  dealers  how  to  compute  the 
costs  of  doing  business  in  their  own  stores  and  to  get  them 
to  establish  uniform  accounting  systems,  so  that  results  from 
various  stores  may  be  compared  readily.  Practically  every 
retailers'  association  in  the  country  is  now  working  towards 
this  end. 

It  is  not  thought  that  accurate  knowledge  of  costs  will 
eliminate  competition,  but  with  exact  knowledge,  it  is  be- 
lieved that  most  dealers  will  hesitate  before  beginning  to  cut 
prices  down  below  the  cost  line.  If  they  do  cut  below  they 
will  at  least  do  so  consciously,  and  this  has  not  always  been 
the  case  with  price  cutters  in  the  past. 

Some   associations   have   worked   out,    and   the   trade 


^. 


178  ECONOMICS  OF  RETAILING 

papers  have  published  what  have  been  considered  fair  prices 
for  various  kinds  of  retail  services,  much  the  same  as  profes- 
sional organizations  have  worked  out  schedules  of  regular 
rates  or  charges.  The  National  Association  of  Retail  Drug- 
gists has  a  price  schedule,  which  it  suggests  that  its  mem- 
bers should  use,  showing  what  to  charge  for  prescriptions. 
In  this  schedule  careful  account  is  taken  of  the  average 
amount  of  time  required  to  fill  the  various  classes  of  pre- 
scriptions, costs  of  materials,  containers,  and  so  on.  How 
generally  this  schedule  has  been  adopted  by  member  drug- 
gists is  not  known. 

The  rule  of  custom  is  strong  in  the  retail  business.  Cus- 
tomary prices  are  current  in  many  lines.  It  is  difficult  to 
sell  goods  for  more  than  these  prices,  and  in  case  of  rising 
costs,  the  emergency  is  met  more  frequently  by  reducing 
quality  than  by  increasing  prices.  On  the  other  hand,  cus- 
tomers do  not  expect  to  buy  goods  for  less  than  the  cus- 
tomary prices,  hence  when  costs  of  production  go  down  and 
competition  among  dealers  is  not  particularly  keen,  the  old 
selling  prices  yielding  enlarged  profits  are  often  maintained 
for  a  considerable  length  of  time.  \ 

Every  price  that  is  repeated  tends  to  become  customary. 
After  an  article  has  sold  for  a  considerable  length  of  time  at 
the  same  price  both  customers  and  dealers  get  into  the  habit 
of  thinking  of  it  as  fixed.  Such  prices  tend  to  cover  all  the 
costs  of  production  and  distribution  and  a  minimum  of  sat- 
isfactory net  profit.  Any  other  set  of  conditions  will  tend 
to  upset  the  equilibrium  the  customary  price  presupposes. 
Goods  that  have  to  be  sold  at  less  than  costs  of  production 
and  distribution  will  drop  out  of  the  market,  while  goods 
sold  at  large  net  profits  will  attract  competition  that  will  re- 
sult in  a  reduction  of  the  price.  Between  these  two  forces, 
one  tending  to  limit  the  supply  until  prices  go  up  to  a  satis- 


HOW  RETAIL  PRICES  ARE  FIXED  179 

factory  point,  and  the  other  tending  to  reduce  net  profits  to  a 
minimum,  the  price  tends  to  become  constant  or  customary. 
Whatever  these  customary  prices  are  they  must  be  observed 
by  the  retailer  in  fixing  prices  on  any  particular  article. 

In  all  of  the  struggles  of  business  for  price  and  profits, 
cold-blooded  as  they  seem,  and  generally  are,  there  are  fre- 
quent indications  of  influences  of  an  ethical  nature  at  work. 
What  seems  **  right "  prevails  at  times  over  all  other  forces. 
Discussions  of  "  fair  prices  "  involve  this  higher  element. 
The  opposition  even  of  disinterested  persons  to  cut-throat 
competition  is  another  example.  Customers  are  sometimes 
willing  to  pay  to  some  dealers  a  higher  price  than  goods 
may  be  obtained  for  elsewhere,  because  they  feel  that  the 
dealers  should  be  supported  in  their  policies  of  trade,  as  for 
example,  in  selling  goods  not  made  in  sweat  shops,  in  deal- 
ing in  home  produced  goods,  and  so  on.  The  forces  of 
competition  are  at  least  modified  to  a  certain  extent  through 
such  influences  as  these.  The  store  manager  who  is  known 
for  his  fairness  to  his  employees,  for  his  public  spirit,  and 
for  his  charity  is  likely  to  draw  trade  even  if  his  prices  are 
somewhat  higher  than  those  of  other  merchants  who  have 
not  manifested  the  same  likeable  qualities. 

Another  instance  of  the  influence  of  other  than  purely 
selfish  motives  is  found  in  the  customary  practice  among 
many  dealers,  druggists,  for  example,  to  charge  the  poor 
less  than  the  regular  rates  for  prescriptions  and  medicines. 
This  cannot  be  explained  by  saying  that  they  are  getting  all 
they  can  out  of  these  poor  people.  The  star  added  to  the 
price  mark  —  the  sign  that  less  than  schedule  prices  have 
been  charged  —  found  on  a  large  number  of  the  prescriptions 
in  the  files  of  many  druggists,  indicates  that  the  work  of  the 
profession  of  pharmacy  is  after  all  in  the  interests  of  hu- 
manity and  that  justice  has  tempered  economics  in  fixing 


l8o  ECONOMICS  OF  RETAILING 

the  prices  charged  people  beset  by  pressing  difficulties] 
The  same  spirit  of  fairness  is  aroused  in  another  connecJ 
tion  and  quite  selfishly  perhaps,  but,  nevertheless,  related  t( 
the  phenomena  already  described.  When  a  man  says  t< 
himself  when  marking  the  price  on  an  article,  "  I  ought  t( 
get  so  much  for  it,"  his  idea  back  of  the  word  "  ought  "  has 
fairness  in  view,  even  if  it  is  to  himself.  The  idea  is  quit( 
different  from  that  which  a  man  has  when  he  says  ''  I'll  get 
all  I  can  for  it !  " 

Again,  when  a  man  is  being  ruined  by  competition,  he 
rarely  speaks  of  economic  laws,  nor  does  he  blame  the  eco- 
nomic system.  He  appeals  for  "  fair  play."  He  wants  to  be' 
defended  from  "  unfair  competition."  To  deal  with  such 
cases  as  his,  society  has  built  up  entire  codes  of  legal  process 
and  precedent  on  ''  unfair  trade,"  and  to  these  codes  new 
items  are  constantly  being  added.  In  other  words,  the  ethi- 
cal is  encroaching  on  the  blind,  economic,  frequently  un- 
social, forces  through  the  medium  of  courts  and  law. 

In  considering  at  what  price  goods  should  be  marked  in 
order  that  they  may  sell  profitably,  it  has  been  assumed  up 
to  this^point  that  the  demand  of  all  customers  is  the  same, 
^,  or  that  there  are  no  individual  differeiices_,of_opinion  as  to 
desirability  or  value.  This  might  hold  in  theoryTHbut  in 
practice  nothing  could  be  farther  from  the  truth.  To  illus- 
trate, out  of  ten  men,  probably  not  more  than  five  would 
care  for  a  safety  razor  at  any  price.  Out  of  ten  women, 
not  more  than  three  or  four  would  buy  black  hats  with  pink 
trimmings,  under  any  circumstance,  and  so  on.  Sales  will 
be  limited  to  the  number  of  persons  who  feel  a  desire  for  the 
particular  article.  But  not  only  will  sales  depend  upon  the 
number  of  people  who  have  any  desire  for  the  article,  but 
it  will  also  depend  upon  the  price  itself.  At  a  given  price 
there  will  be  a  certain  number  of  purchasers,  at  a  higher 
price  there  will  be  fewer,  and  at  a  lower  price  there  will  be 


HOW  RETAIL  PRICES  ARE  FIXED  igi 

more.  Thus  the  volume  of  sales  possible  at  a  certain  price 
within  a  certain  time  is  an  important  consideration  in  fixing 
a  price  that  will  be  most  profitable. 

Take  for  example  a  toilet  soap  whose  cost  to  the  dealer, 
both  purchase  price  and  selling  expense  added  together, 
amounts  to  eight  cents  per  bar.  At  what  price  should  it 
be  sold?  The  answer  will  depend  upon  the  possibilities  of 
making  sales  at  different  prices.  Suppose  that  the  sales  for 
a  week  at  ten,  thirteen,  and  fifteen  cents  per  bar  were  esti- 
mated to  amount  to  100,  50,  and  20  bars  respectively.  The 
net  results  of  each  pricing  system  can  be  most  easily  under- 
stood by  a  table : 

Sales  of  Toilet  Soap  in  One  Week  at  Different 

Prices 


Selling  Price 

Total 

Estimated 

Sales 

Amounts 
Received 

Costs  at 

8c  per 

Bar 

Net 
Profit 

10  cents 
13      " 
15       " 

100  bars 
50     " 
20    " 

$10.00 
6.50 
3.00 

$8.00 
4.00- 
1.60 

$2.00 
2.50' 
1.40' 

It  is  clear  from  the  above  that  sales  made  at  thirteen 
cents  per  bar  will  yield  the  highest  net  return.  This  will, 
therefore,  be  selected  as  the  sales  price  for  the  week.  It 
should  also  be  noted  that  sales  at  ten  cents  per  bar  are  rela- 
tively more  profitable  than  at  fifteen  cents  per  bar  for  the 
reason  that  five  times  as  much  soap  is  sold  at  ten  cents  as  at 
fifteen  cents,  and  the  net  profit  on  the  sales  at  ten  cents 
amounts  to  more  than  the  net  profit  on  the  sales  at  fifteen 
cents. 

One  of  the  productive  factors  of  a  retail  store  is  the 
'capital  invested  injts  stocks  cif  goods.  When  this  capital 
is  borrowed  for  use  in  the  store,  interest  must  be  paid  for  it, 
and  interest  should  be  entered  as  an  expense  charge  in  any 
case  regardless  of  whether  the  manager  of  the  store  bor- 
rows or  supplies  capital  from  his  own  funds.     Efficiency  in 


l82  ECONOMICS  OF  RETAILING 

its  use  depends  upon  its  activity.     By  activity  is  meant  the] 
number  of  times  it  can  be  used  over  and  over  again  in  the] 
course  of  a  year.     Each  complete  use  of  the  capital  in- 
vested in  merchandise  is  known  as  a  "  turnover."     If  ex^ 
penses  and  profits  per  sale  remain  the  same,  the  greater  the] 
number  of  turnovers  within  a  year,  the  greater  the  net  profit] 
resulting.^     This  fact  has  long  been  recognized.     There  is' 
an  old  business  maxim  that  expresses  the  idea  exactly ;  "  A 
nimble  sixpence  is  better  than  a  slow  shilling."     To  illus- 
trate with  a  very  simple  kind  of  retail  business,  suppose 
that  a  push  cart  vendor  invests  $6  in  fruits  and  vegetables 
and  sends  out  the  cart  and  its  load  of  merchandise  with  a 
salesman  who  is  employed  at  $2  a  day.     The  cart  load 
brings  $9.     If  it  takes  a  day  to  sell  out,  the  owner  will  have 
to  pay  $2  out  of  the  $9  to  his  employee.    Since  the  vegetables 
cost  $6,  his  net  profit,  excluding  repairs  and  upkeep  on  his 
push  cart  in  this  illustration,  amounts  to  $1.     But  if  the  load 
can  be  sold  during  the  forenoon,  and  another  like  load  in 
the  afternoon,  the  expenses  for  the  employee  will  be  the 
sam«,  viz.,  $2,  the  cost  for  merchandise  will  be  twice  $6  or 
$12,  while  the  gross  receipts  come  to  $18.     The  net  profits, 
therefore,  amount  to  $18  less  ($12  plus  $2),  or  $4  for  the 
day.     That  is  to  say,  one  turnover  per  day  will  yield  the 
push  cart  merchant  $1  profit,  but  two  turnovers  will  yield 
him  $4  on  the  same  investment.     A  third  turnover  during 

*  1  The    annual    turnover    in   a    retail    business   is    usually    computed    by    dividing 

'l  the  sales  for  the  year  by  the  inventory.  This  method  is  incorrect.  In  the  first 
I  place,  the  inventory  is  usually  taken  at  billed  or  cost  prices,  and  is,  therefore, 
not  comparable  with  the  sales.  In  the  second  place,  the  inventory  when  taken 
only  once  or  twice  a  year,  is  usually  not  taken  at  a  time  that  will  represent  the 
fair  average  value  of  the  stock  carried.  A  January  inventory  represents,  or 
should  represent,  the  lowest  stock  level  of  the  year.  Using  this  method,  gives  a 
result  that  is  too  high,  and  is,  therefore,  likely  to  delude  the  merchant  into 
thinking  that  his  turnover   is  greater  than  it  really  is. 

The  correct  way  to  find  the  annual  turnover  is  to  divide  the  sales  for  the 
year  by  the  average  inventory  for  all  twelve  months,  taken  at  selling  values  not 
costs;  or  divide  the  total  amount  of  goods  sold,  expressed  in  the  figure  which 
represents    what   those   goods    cost    by   the    average   inventory    at   cost   prices. 

If  only  one  or  two  inventories  are  taken  during  the  year,  they  should  be 
taken  at  times  that  most  nearly   represent  average   stock  conditions. 


HOW  RETAIL  PRICES  ARE  FIXED  183 

the  day  would  increase  his  profits  to  $7,  all  on  the  capital 
investment  of  $6. 

In  the  illustration  above,  it  is  assumed  that  selling  ex- 
penses remained  the  same,  that  is  $2  per  day,  regardless  of 
the  amount  of  sales.  If  the  absolute  expenses  of  running 
a  store  remained  the  same,  while  its  sales  increased,  the 
principle  of  increase  in  profits  in  proportion  to  turnover 
would  be  the  same  as  for  the  push  cart  vendor.  This  is 
rarely  the  case,  however.  Some  expenses  in  conducting  a 
retail  store  tend  to  parallel  increases  in  sales,  particularly 
the  item  of  salaries  or  wages  for  salespeople,  deliveries, 
rent  and  some  others.  The  average  store  conditions  can 
be  illustrated  better  by  assuming  in  our  push  cart  example 
that  the  salesman  employed  receives  a  commission  rather 
than  a  salary.  Suppose  that  he  receives  $2  for  every  load 
of  merchandise  he  sells.  Assuming  all  other  conditions  in 
the  illustration  to  be  the  same,  if  but  one  turn  were  made 
per  day,  the  owner  of  the  push  cart  would  reap  a  net  profit 
of  $1.  But  if  two  turns  were  made,  he  would  make  $2,  and 
if  three  turns  were  made  he  would  make  $3.  Thus,  when 
expenses  remain  constantly  proportionate  to  sales,  the  net 
profits  for  any  period  of  time  will  equal  the  net  profits  on 
one  turnover  multiplied  by  the  number  of  turnovers  in  that 
time. 

Up  to  a  certain  point  a  store  starting  in  business  can 
generally  increase  its  sales  without  increasing  its  expenses 
proportionally.  Beyond  this  point  its  expenses  parallel  in- 
creases in  sales  until  a  still  higher  point  is  reached  when 
additions  to  sales  cost  relatively  more  and  more.  Expressed 
in  terms  of  economics,  the  first  is  a  stage  of  increasing  re- 
turns in  proportion  to  outlay,  the  second  is  a  stage  of  con- 
stant returns,  and  the  third  is  a  stage  of  diminishing  re- 
turns. In  the  first,  the  percentage  of  expense  to  sales  de- 
creases ;  in  the  second,  it  remains  constant ;  and  in  the  third, 


1 84  ECONOMICS  OF  RETAILING 

it  begins  to  climb.  The  rise  in  expense  in  the  third  staj 
may  proceed  to  the  point  where  it  will  not  pay  to  increase 
the  sales  at  all,  for  the  reason  that  the  costs  incurred  in  get- 
ting the  additional  business  are  equal  to  or  greater  than  the 
gross  profits  derived  therefrom.  For  the  purposes  of  this 
chapter,  it  may  be  assumed  that  most  retail  concerns  are  in 
the  second  stage,  the  stage  in  which  selling  expense  simply 
parallels  business.  Whatever  profit,  therefore,  is  gained  on 
one  turnover  of  the  capital  of  such  stores,  is  multiplied  by 
the  rate  of  turnover. 

^t  is  obvious  that  the  retailer  will  seek  to  increase  the 
number  of  turnovers  in  order  to  get  the  higher  net  profit) 
It  may  even  be  profitable  to  reduce  the  selling  price  some- 
what to  increase  the  turnover.  This  amounts  in  substance 
to  dividing  the  net  profits  due  to  the  greater  turnover  with 
the  customers.  To  illustrate  how  this  works  out  we  may 
consider  the  push  cart  vendor  again.  It  was  assumed  that 
each  turnover  would  bring  a  dollar  of  net  profit,  and  that 
$3  of  net  profit  could  be  made  in  a  day  if  three  turnovers 
co^ild  be  secured.  Suppose,  however,  that  the  best  that 
could  be  done  was  one  turnover  per  day  when  selling  at 
regular  prices,  but  that  by  reducing  the  prices  so  as  to  sell 
the  entire  load  for  $8.50  instead  of  $9,  three  turns  could  be 
made..    Then  what  would  the  results  be? 

Each  turnover  would  in  this  case  net  the  owner  a  profit 
of  50  cents  or  a  total  of  $1.50  on  the  three,  while  one  turn- 
over at  full  prices  would  yield  a  net  profit  of  only  $1.  It 
would,  therefore,  be  more  profitable  by  50  cents  to  sell  at 
the  lower  prices  and  turn  the  goods  oftener  than  to  sell  at 
the  higher  prices.  The  same  principle  holds  for  every  re- 
tail business.  The  retail  price  must  be  fixed  at  the  point 
which  will  bring  the  highest  net  return,  the  number  of  turn- 
overs considered. 

This  brings  us  to  a  consideration  of  the  possibilities  of 


HOW  RETAIL  PRICES  ARE  FIXED  185 

turnovers  in  the  various  lines  of  merchandise.  Upon  this 
point  there  have  been  collected  a  number  of  interesting  fig- 
ures. 

Annual  Turnovers  in  Retail  Stores  ^ 

Kind  of  Stores  Number  of  Turnovers 

Grocery    10 

Department    1 7 

Variety  Goods    6 

Drug    ' 4.5 

Dry-Goods     4    >y 

Hardware    3.5 

Furniture    3 

Shoes     2.1 

Clothing    2*^  ^^X 

Jewelry 1.5  ^^mfM,  %%tAih^l 

Annual  Turnovers  of  Departments 

IN 

Department  Stores  and  Country  General  Stores  ^ 

Departments  City  Stores     Country  Stores 

Books    4  1.5 

Candy    15  9 

Qocks 2.5  1 

Embroideries     3.5  3 

Furs     5  3 

Infants'  Clothing  5  3 

Laces   4  2 

Linens    3.5  2 

Men's  hats  7  4 

Pianos     9  4 

Ribbons    6  2 

Stationery    5  2  . 

Umbrellas  and  canes  11  3 

Trunks    5  1.5 

Veilings    5.5  2 

Wash  goods  and  flannels  5  3.2 

Average  Annual  Turnovers  of  Typical  Lines  * 

Goods  Turnovers 

Notions    9 

Corsets    8     ' 

Women's  ready-to-wear   6  , 

Wall  paper    4.2 

Men's  furnishings 4.2 

2  Compiled  by  Wheeler  Sammons  of  System. 

3  Id. 

*  System,  March,   1914,   p.   235. 


l86  ECONOMICS  OF  RETAILING 

Goods  Turnovers 

Underwear 4.1 

Hosiery 4 

Gloves    3.5 

Dress  Goods  3.2 

Silks     3.1 

Domestics     3 

Carpets   1.5 

Average  Annual  Turnovers  in  Retail  Stores  ^ 

Goods  Turnovers 

Candy  15-25 

Groceries  12-16 

Cloaks    10-12 

Millinery    6-8 

Hats    5-8 

Clothing    4-6 

Furnishings    4-5 

Carpets    4 

Hosiery    4 

Crockery    3 

Shoes 2.5 

Furniture    2.5  ' 

While  the  statements  of  both  Sammons  and  Geuting  are 
subject  to  the  criticism  that  neither  gives  any  idea  as  to  how 
many  or  what  classes  of  stores  are  considered  in  getting  at 
their  averages,  both  are  valuable. 

The  Harvard  retail  shoe  store  investigation  gives  the 
range  of  turnover  from  1  up  to  3.6,  with  1.8  as  the  point  at 
which  a  large  number  of  stores  center,  and  offers  3.5  as  a 
realizable  standard  for  shoe  store  turnovers.^ 

It  is  clear  that  in  this  matter  analysis  can  be  carried 
much  farther  than  indicated  by  the  preceding  tables.  It 
may  be  safely  assumed  that  each  kind  of  article  carried  in 
stock  has  its  rate  of  turnover,  and  also  its  specific  selling 
cost.  It  is  not  likely  that  retail  cost  accounting  can  ever 
be  carried  to  the  point  where  these  fine  subdivisions  can  be 

5  From  an  address  by  A,  H.  Geuting,  formerly  manager  of  the  Shoe  Depart- 
ments of  Gimbel's  in  Philadelphia,  now  owner  and  manager  of  a  successful  shoe 
store  in  the  same  city,  as  reported  in  the  Drygoodsman,  Aug.  17,  1912. 

6  Bulletin  of  the  Bureau  of  Business  Research,  Harvard  University,  No.  1, 
May,  1913,  p.  14. 


HOW  RETAIL  PRICES  ARE  FIXED 


187 


made  except  for  such  stores  as  carry  only  a  very  few  kinds 
of  goods.  The  best  that  can  be  done,  as  it  now  appears,  is 
to  "  departmentize  "  the  accounts  to  correspond  with  the 
general  departments  or  main  lines  found  in  a  store  and  then 
make  estimates  within  those  departments  as  to  the  relative 
burdens  of  expense  each  article  should  stand,  and  as  to  the 
rate  of  its  turnover.  This  involves  many  questions,  such  as 
a  comparison  of  the  relative  costs  of  selling  package  as  com- 
pared with  bulk  goods,  staples  compared  with  novelties, 
high  priced  with  low  priced  goods,  and  so  on. 

If  carried  out  in  a  practical  way  this  analysis  would 
show  that  the  costs  of  doing  business  for  any  retail  store 
constitute  but  an  average  of  the  costs  of  doing  business  in 
each  and  all  of  the  separate  kinds  of  goods  handled.  For 
example,  if  a  grocery  store  whose  costs  of  doing  business 
amount  to  16  per  cent  of  sales  could  be  analyzed  minutely, 
it  would  be  found,  probably,  that  a  large  number  of  the 
goods  in  that  store  were  being  sold  at  actual  costs  of  more 
than  16  per  cent,  some  possibly  as  high  as  25  per  cent  and 
even  30  per  cent;  while  other  goods  would  run  considerably 
less  than  16  per  cent.  It  could  be  safely  assumed  that  such 
goods  as  spices,  teas,  fancy  canned  fruits,  very  perishable 
goods,  and  other  goods  sold  in  small  quantities  and  requir- 
ing considerable  time  to  demonstrate  and  handle,  cost  the 
grocer  more  than  16  per  cent;  while  the  selling  cost  of  such 
goods  as  sugar,  flour,  lard,  kerosene,  rough  staple  vegetables, 
and  so  on,  is  less  than  16  per  cent  of  the  sales  price. 

A  number  of  retailers  and  others  who  have  been  study- 
ing the  application  of  cost  accounts  to  the  pricing  of  goods, 
hold  that  the  general  percentage  of  expense  of  selling  should 
be  added  uniformly  to  all  goods  purchased,  and  that  a  uni- 
form net  profit  should  be  added  to  this  amount.  The  sum 
of  these  three  items,  the  cost  price  of  the  goods,  the  costs 


l88  ECONOMICS  OF  RETAILING 

of  selling,  and  the  net  profit,  should  be  the  price  at  which  the 
goods  should  be  sold.  That  this  method  would  not  result 
in  prices  representative  of  market  values  we  have  already 
seen,  but  it  may  be  pointed  out  here  that  if  this  method  were 
followed,  some  goods  would  have  to  bear  a  much  heavier 
expense  burden  than  they  really  incur,  while  other  goods 
would  be  sold  for  less  than  the  original  costs,  plus  the  costs 
of  handling. 

In  reply  to  this  criticism,  those  who  favor  this  method 
argue  that  this  makes  no  practical  difference  since  the  total 
expenses  and  total  sales  will  probably  be  the  same  as  before. 
But  this  answer  is  subject  to  question,  and,  besides,  the  re- 
tailer who  attempts  this  plan  is  likely  to  find  himself  in 
trouble  with  his  competitors.  Some  who  may  be  carrying 
only  such  goods  as  may  be  handled  and  sold  at  low  expense, 
will  thus  be  able  to  underbid  him  for  trade  and  force  him 
to  drop  his  prices  on  such  goods  or  lose  the  opportunity 
of  effecting  their  sale.  In  case  he  refuses  to  reduce  his 
pf ices,  it  may  be  assumed  that  people  will  go  elsewhere  for 
those  goods  on  which  his  prices  are  high  in  comparison  with 
the  prices  offered  by  other  merchants,  while  they  will  come 
to  him  for  goods  which  he  sells  at  lower  prices  than  others, 
though  they  are  burdened  with  a  high  cost  of  handling  and 
selling.  But  if  he  does  not  raise  his  price  on  these,  he 
will  begin  to  lose  money,  for  the  sales  that  he  planned  on 
in  the  lower  expense  burden  goods  can  no  longer  be  made. 
Thus  his  deficits  in  the  higher  burden  goods  will  not  be 
covered. 

The  only  logicaLway  would  seem  to  be  for  each  arti.de 
in  the^ore  tocarrvits-own- burden  as  iully_a.s  possible. 


Where  the  selling  expense  is  high,  the  price  should  be  made 
correspondingly  high,  and  where  the  selling  expense  is  low, 
the  price  should  be  relatively  moderate.  Long  profits  should 
be  made  on  the  slow  sellers  and  short  profits  on  the  quick 


HOW  RETAIL  PRICES  ARE  FIXED  189 

sellers.  Competition  will  tend  to  drive  prices  in  these  di- 
rections. 

It  will  now  be  of  interest  to  see  what  practice  retailers 
follow  in  marking  the  selling  prices  of  their  goods.  It 
will  be  recalled  that  the  costs  of  the  goods,  plus  the  costs 
of  selling,  set  the  lower  limits  at  which  goods  may  be  sold, 
while  the  relative  desirability  of  the  article  to  the  consumer 
sets  the  upper  limit.  Between  these  two  limits  there  operate 
such  forces  as  competition,  custom,  personal  salesmanship, 
and  desire  for  fair  play  or  the  square  deal.  With  these 
forces  to  reckon  with,  how  is  the  price  to  be  set? 

One  of  the  customary  methods  is  to  study  competitors' 
prices  and  then  fix  prices  at  the  same  points.  This  is  a 
dangerous  policy  unless  the  retailer  knows  what  his  own 
costs  are  and  that  his  prices  adequately  cover  them.  If 
competitors'  prices  are  too  low  on  some  goods,  the  only  way 
out  of  the  difficulty  for  the  retailer  is  to  avoid  such  goods 
as  much  as  possible,  deal  in  other  lines  in  which  prices  are 
not  so  low,  secure  exclusive  agencies,  and  specialize  on  cer- 
tain profitable  lines. 

When  competitors'  prices  are  not  known,  the  method 
of  determining  prices  most  commonly  used  is  to  compare 
the  goods  to  be  priced  in  every  way  with  other  goods  of 
the  same  class  that  have  already  been  successfully  sold,  and 
to  mark  the  new  goods  higher,  lower,  or  the  same,  as  they 
seem  to  be  more,  or  less,  or  equally  desirable. 

In  this  connection  it  is  worth  noticing  that  some  of 
the  most  successful  retailers  constantly  call  on  their  sales- 
people for  assistance  in  this  matter.  The  salesman  is  asked 
what  he  thinks  he  can  sell  a  given  article  for.  The  sales- 
man realizes  that  he  succeeds  with  his  firm  only  in  propor- 
tion as  he  makes  a  profit  for  it.  In  the  light  of  his  experi- 
ence with  past  goods  he  will  name  as  high  a  price  as  he  thinks 
he  can  get.     But  if  he  is  wise,  he  will  not  make  it  too  high 


I90  ECONOMICS  OF  RETAILING 

for  he  may  be  called  to  account  later  on  for  his  inability 
to  sell  it  at  the  price  named.  This  method,  therefore,  not 
only  gets  a  price  set  upon  the  goods  at  which  they  are  likely 
to  be  sold,  but  also  enlists  the  full  co-operation  of  the  sales- 
man in  making  the  goods  move  at  the  price  named. 

A  combination  of  these  methods  —  a  comparison  with 
competitor's  prices,  comparison  with  prices  of  other  goods 
successfully  sold,  using  the  judgment  of  the  salespeople,  in 
the  meantime  checking  back  to  the  costs  of  the  goods  and 
of  selling  —  is  the  plan  followed  by  a  large  number  of  suc- 
cessful stores.  Following  any  one  plan  is  likely  to  lead 
into  difficulties.  Only  by  considering  all  of  the  factors 
affecting  cost  on  the  one  hand  and  demand  on  the  other,  can 
the  price  be  set  which  will  bring  the  best  returns  to  the  store. 

A  large  number  of  goods  are  exceedingly  variable  in 
value,  particularly  those  affected  by  changes  in  fashion.  A 
recent  article  in  a  trade  paper  asserted  that  25  to  30  per 
cent  of  the  goods  handled  in  department  stores  are  subject 
to  mark-downs.  In  other  words,  in  such  goods,  even  when 
of  the  same  quality,  there  is  no  certainty  that  all  purchased 
at  one  time  can  be  sold  at  the  price  named  at  first.  As  soon 
as  a  stock  of  such  goods  begins  to  move  slowly  at  the  price 
first  set,  it  is  customary  to  "  mark  them  down."  Reduction 
sales  are  held,  and  the  goods  cleared  out. 

To  illustrate,  suppose  a  concern  purchases  a  lot  of  fancy 
silks  at  a  uniform  price  of  $1.35  per  yard.  In  the  lot  there 
may  be  a  great  variety  of  patterns,  colors,  and  shades. 
Recognizing  the  fact  that  demand  for  such  goods  as  dress 
silks,  varies  exceedingly  with  individual  purchasers,  and  that 
the  demand  created  by  fashion  is  at  its  best  very  fickle,  the 
concern  sets  out  to  make  the  best  of  it.  Instead  of  setting 
a  uniform  price  on  the  silks  at  which  they  hope  to  sell  out 
the  entire  lot,  they  may  fix,  at  first,  a  price  as  high  as 
$3.00,  or  more.     The  fact  that  a  "  fresh  shipment  of  beau- 


HOW  RETAIL  PRICES  ARE  FIXED  191 

tiful  dress  silks  in  the  very  latest  patterns  has  just  arrived  " 
will  be  announced,  and  some  shoppers  are  likely  to  be  in- 
terested. As  a  result  some  sales  will  be  made.  These  first 
customers  will  pick  out  what  to  them  seem  the  most  desir- 
able patterns  and  colors.  Then  in  order  to  move  another 
portion  of  the  stock  a  "  cut  "  in  price  is  resorted  to.  *'  Silks 
formerly  offered  at  $3.00  are  now  being  sold  at  $2.19." 
This  brings  a  great  many  more  shoppers,  and  at  this  point 
a  large  part  of  the  goods  are  probably  sold.  But  there  may 
still  remain  a  collection  of  odds  and  ends  of  the  patterns 
that  did  not  seem  very  desirable  to  the  two  classes  of  shop- 
pers that  have  already  examined  them.  These  are  "  re- 
duced "  again,  perhaps  sent  to  the  bargain  basement  or  sub- 
way store,  to  be  sold  at  $1.69.  Here  the  last  of  the  lot  is 
disposed  of.  This  policy  seems  to  succeed  better  than  to 
offer  the  entire  lot  at  say  $2.25,  and  hold  to  that  price  until 
all  are  sold.  At  the  latter  price  it  is  not  likely  that  all  could 
be  sold  and  the  net  result  would  be  considerably  less  profit- 
able to  the  concern  than  when  sold  in  the  way  indicated. 
This  method  of  marking  up  goods  and  making  reductions 
as  necessary  seems  to  be  the  most  effective  way  to  sell 
some  goods,  especially  those  that  are  subject  to  changes  in 
style.  Besides  bringing  handsome  profits  to  the  concern  di- 
rectly, the  spectacular  cuts  in  prices,  incident  to  the  system 
described,  furnish  excitement  for  the  readers  of  the  store's 
advertising,  and  help  to  draw  crowds  who  may  buy  other 
goods  as  well  as  those  advertised. 

There  are  certain  well-defined  policies  with  reference 
to  retail  store  prices  that  need  to  be  mentioned.  The  first 
of  these  is  the  oneiprice  policy.  Stores  following  this  policy 
mark  their  goods  in  plain  figures  and,  at  any  given  time,  sell 
to  any  or  all  buyers  at  the  same  price.  That  some  buyers 
might  be  willing  to  pay  more  if  they  had  to,  makes  no 
difference.     If  the  price  is  too  high  for  others  no  reduction 


192  ECONOMICS  OF  RETAILING 

is  made.  All  are  treated  alike.  The  one-price  policy  is 
comparatively  modern.  It  first  came  into  use  in  this  country 
in  the  big  dry-goods  and  department  stores.  The  organiza- 
tion of  such  stores  as  they  grew  became  so  complicated 
that  any  other  policy  was  hard  to  carry  out.  The  old 
dicker  and  bargain  policy  still  found  in  many  one-line  stores 
of  the  old-fashioned  type  required  salespeople  with  consider- 
able skill  in  handling  customers.  The  one-price  policy  made 
it  possible  to  employ  people  who  had  had  no  training  in 
business  nor  in  any  phase  of  buying  and  selling.  To  be  suc- 
cessful the  one-price  policy  demanded  that  the  price  be 
fixed  at  the  point  at  which  the  goods  would  move,  and  after 
a  trial,  if  it  was  found  that  customers  did  not  buy,  the 
prices  could  be  revised  and  reduced.  If  the  prices  were 
made  too  low,cthatiact  could  also  be  noted  and  changes  made 
accordingly.  Thus^ -the  Jb,argaining  process  was  removed^ 
from  individuals  and  made  a  matter  of  reaching  groups.    ^ 

The  one-price  policy  has  been  found  very  successful  in 
this  country  and  very  much  in  accord  with  the  common 
sentiment  of  the  American  people  —  equality  of  opportunity 
(even  in  buying  goods)  to  all.  It  has  resulted  in  great 
economies  in  time  for  both  buyer  and  seller.  The  weak  and 
the  ignorant  have  been  placed  on  a  level  in  purchasing  ability 
with  the  best.  Salesmanship  under  the  one-price  policy  has 
been  raised  from  the  level  of  talking  about  the  price,  toi 
demonstrating  what  is  being  offered  for  the  price. 

The  old  plan  of  marking  goods  with  secret  or  code  price 
marks  and  then  selling  them  to  customers  for  as  much  above 
this  price  as  possible  has  not  entirely  passed  away.  There 
are  still  houses  whose  salesmen  "  size  up  a  customer  "  when 
it  comes  to  stating  the  price,  and  then  ask  as  much  above 
the  minimum  set  by  the  concern  as  they  think  the  customer 
is  likely  to  pay.     In  the  old  days  the  customer  usually  par- 


HOW  RETAIL  PRICES  ARE  FIXED  193 

ried  and  made  an  offer  of  considerably  less.  Then  the 
higgling  began,  the  salesman  bragging  about  his  goods  and 
the  customer  pointing  out  their  defects,  until  finally  some 
compromise  was  reached,  often  halfway  between  the  price 
first  asked  and  that  offered.  In  many  instances  the  sales- 
man received  a  commission  on  all  sales  in  which  he  suc- 
ceeded in  getting  more  than  the  minimum  decided  upon  by 
the  concern,  some  firms  splitting  such  profits  evenly  with 
the  salesmen.  Except  in  the  largest  cities  where,  in  addi- 
tion to  the  modern  department  store  with  its  one  price  to 
all,  are  found  the  lowest  grade  of  shops  with  different  prices 
to  different  people,  these  practices  no  longer  prevail. 

The  system  of  variable  prices  has  little  to  commend  it 
except  its  age.  In  principle  it  accords  perfectly  with  the 
old  theory  of  freedom  of  the  market  and  free  competition. 
Under  this  principle  the  "  fittest "  bargainer  "  survived." 
In  times  past  when  man's  wants  and  varieties  of  goods  were 
not  so  numerous  as  they  are  now  and  when  there  was  not 
the  pressure  for  time  that  characterizes  modern  life,  there 
may  have  been  more  reason  for  such  a  policy  than  at 
present.  Since  there  were  fewer  goods  to  buy,  and  fewer 
varieties  of  those  goods,  it  must  have  been  easier  to  exercise 
wisdom  in  their  selection  and  purchase,  and  to  know  their 
qualities  and  values.  Customers  could  then  afford  to' waste 
hours  in  jangling  and  bargaining  in  the  shops  over  half 
shillings,  whereas  now,  so  far  as  possible,  every  development 
is  towards  setting  man's  time  free  from  the  economic  strug- 
gle of  life.  Hours  of  labor  are  cut  down,  children  are  for- 
bidden to  labor  before  reaching  certain  ages,  and  pensions 
are  given  to  the  aged  so  that  they  may  retire  from  labor. 
In  accord  with  this  same  tendency,  the  people  of  the  present 
are  seeking  to  standardize  and  to  make  automatic  as  much 
pf  the  economic  life  as  possible,  in  order  to  save  time  for 


194  ECONOMICS  OF  RETAILING 

other  things.     The  one-price  policy  in  retail  stores  seems 
to  be  in  line  with  these  tendencies. 

Finally,  there  are  indications  that  in  the  near  future 
the  public  will  be  more  generally  informed  concerning  the 
costs  of  distribution  and  consequently  concerning  retailing 
Much  of  the  dissatisfaction  and  criticism  of  our  distributive 
system  has  grown  up  because  the  public  has  not  fully  under- 
stood what  work  has  been  performed  for  them  by  distributors  • 
and  what  the  legitimate  costs  for  such  services  really  are 
Not  knowing  the  facts,  such  information  as  the  people  have 
gained  concerning  the  margins  of  gross  profit  that  retailers 
get  has  made  it  easy  to  conclude  that  middlemen  are  rob- 
bers. A  clearer  knowledge  of  the  necessary  costs  of  any 
form  of  distribution  must  certainly  serve  to  clear  up  any  mis- 
conceptions or  misunderstandings. 

It  has  already  been  suggested,  and  it  may  not  be  long 
before  the  more  progressive  retailers  will  decide  to  ^evf a1 
theirbusiness-cests  to  their  customers  and  urge  them  to 
come  for  goods  on  the  grounds  that  their  costs  of  doing 
business  are  less  than  their  competitors.  In  these  days 
when  we  worship  the  ideal  of  efficiency,  such  an  argument  as 
that,  truthfully  stated,  should  prove  a  great  trade  attractor. 
Sooner  or  later  the  growing  unrest  of  the  public  concerning 
the  rising  costs  of  living  will  be  focussed  on  the  costs  of 
distribution.  Public  investigations  will  be  made  and  legis- 
lation proposed.  Much  of  any  ill-will  that  might  be  present 
in  that  scrutiny,  when  it  comes,  can  be  averted  by  retailers  if 
they  will  but  take  the  public  into  their  confidence.  Price 
is  the  tender  spot  in  nearly  all  economic  discussions  where 
public  interest  is  concerned.  It  is  highly  essential  that  all 
retailers,  who  are  doing  a  legitimate  business  upon  a  rea- 
sonable profit  basis,  co-operate  in  letting  the  public  know 
what  are  their  price-making  processes  and  problems. 


CHAPTER  XII 

THE  DEPARTMENT  STORE 

The  department  store  is  a  retailing  institution  that  deals 
in  several  lines  of  goods,  each  line  separated  or  "  depart- 
mentized  "  from  the  rest,  both  in  location  within  the  building 
and  in  the  concern's  accounting  and  management  systems. 
Each  department  is  considered  practically  as  a  store  in  itSelf, 
and  in  large  stores  each  has  its  separate  organization  of 
buyer,  or  department  manager,  and  salespeople,  much  the 
same  as  any  independent  store. 

The  word  "  department  store  "  has  not  been  received 
with  much  favor  by  the  managers  of  some  of  the  largest 
and  most  representative  institutions  of  this  kind.  "  United 
stores,"  "  consolidated  stores,"  and  other  names  have  been 
suggested  as  more  appropriate.  The  reason  for  this  dis- 
favor is  probably  that  the  word  ''  department  store  "  has 
been  claimed  by  many  concerns  doing  business  on  planes 
that  have  tended  to  draw  disrepute  to  the  whole  class. 
However,  the  term  "  department  store  "  has  come  into  gen- 
eral use  by  the  public,  arid  it  is  probable  that  any  change 
would  be  difficult. 

Although  department  stores  have  existed  in  this  country 
less  than  half  a  century,  their  origin  is  hard  to  trace.  The 
general  merchandise  store  once  so  common,  and  still  found 
in  large  numbers  of  country  towns,  handling  all  classes  of 
goods,  but  not  in  departments,  is  considered  by  some  as 
the  prototype  of  the  modern  department  store.  There  is 
certainly  a  similarity  in  the  functions  performed  by  the  two 

195 


196  ECONOMICS  OF  RETAILING 

institutions,  but  their  respective  organizations  are  entirely 
different,  and  but  few  of  the  present  department  stores 
were  the  direct  outgrowth  of  general  merchandise  stores. 
The  general  merchandise  store  has  usually  given  way  to 
specialty  or  one-line  stores,  and  the  department  store  has 
appeared  only  after  the  merchandising  of  the  community  has 
become  well  established  and  advanced.  A  large  number  of 
department  stores  trace  their  beginnings  to  dry-goods  stores. 
Factory  production  of  women's  goods,  and  of  goods  formerly 
made  in  the  homes,  such  as  women's  and  children's  ready- 
to-wear,  underwear,  hosiery,  millinery,  laces,  embroideries, 
and  household  goods  of  all  kinds  has  resulted  in  a  demand 
for  special  outlets  to  women  customers.  Since  the  dry- 
goods  stores  were  first  in  the  field  as  suppliers  of  women's 
needs  these  new  lines  of  goods  have  naturally  found  a  place 
in  dry-goods  stores  expanded  into  department  stores.  The 
competition  among  dry-goods  merchants,  and  the  narrowing 
margins  in  the  older  lines  of  goods,  such  as  the  textile 
staples,  have  helped  to  make  the  merchants  more  ready  to 
take  on  the  new  lines  and  to  expand  their  stores  by  adding 
new  departments  than  they  would  otherwise  have  been. 
Thus,  by  gradual  expansion,  the  dry-goods  store  grew  into 
a  department  store. 

It  seems  that,  in  some  cases,  the  department  store  had 
its  origin  in  a  consolidation  of  several  stores  conducted  \>y 
as  many  individuals  under  one  roof.  It  has  been  customary 
in  many  instances  for  the  owner  of  a  building,  or  the  lessee 
of  the  portion  suited  for  store  purposes,  to  lease  a  part  of 
the  floor  space  to  one  person,  and  other  parts  to  others  with 
the  understanding  that  each  should  conduct  a  retail  business 
thereon  in  a  specified  line  of  goods  not  competing  with  other 
lines  of  goods  offered  in  other  departments.  There  are  in 
^j^ist^nce   today   many   such   cornbined    stores.     With   th? 


THE  DEPARTMENT  STORE 


197 


passage  of  time  the  ownership  of  these  several  departments 
passed  to  one  individual,  who  thereby  became  a  department 
store  owner. 

Whatever  were  the  beginnings  of  department  stores,  the 
fact  remains  that  the  period  following  the  panic  of  1873—4 
in  this  country  saw  a  rapid  development  of  this  class  of  re- 
tailing establishment.  The  Jordan  Marsh  Company's  storfe 
in  Boston  is  credited  by  some  with  being  the  first.  This 
store,  it  is  understood,  received  the  idea  from  the  Bon 
Marche,  a  large  retail  store  in  Paris,  and  the  first  depart- 
ment store  of  which  anything  is  known  anywhere.  Shortly 
after  the  Jordan  Marsh  store  had  been  departmentized,  other 
department  stores  were  established  in  Chicago,  Philadelphia, 
and  New  York. 

Following  the  close  of  the  Civil  War,  prices  of  all  com- 
modities handled  in  retail  stores  began  to  fall.  Competition 
stiffened,  new  methods  of  merchandising  began  to  be  tried 
out.  To  use  a  stock  exchange  term,  the  "  bears  "  ruled  the 
retail  markets.  Many  of  the  older  storekeepers  did  not 
know  how  to  adapt  their  business  so  as  to  buy  and  sell  under 
such  conditions.  Out  of  these  circumstances  grew*  the 
tendency  among  some  retailers  to  buy  for  cash  in  the  whole- 
sale markets  and  direct  from  the  producers,  to  seek  out  bar- 
gains, and  to  sell  quickly  by  offering  the  merchandise  at 
prices  lower  than  usual.  Profits  were  made  smaller  per 
sale,  but  stocks  were  turned  oftener.  Advertising  was  ap- 
plied to  help  sell  the  goods.  Special  sales  began  to  be  in- 
troduced; while,  on  the  other  hand,  the  demand  of  the  public 
for  goods  increased  both  in  variety  and  amount.  Under 
these  conditions  there  appeared  contemporaneously  the  de- 
partment store,  the  mail  order  house,  and  the  chain  store. 

According  to  the  United  States  Census  of  1910,  there 
were  8,970  department  store  merchants  and  88,059  general 


198  ECONOMICS  OF  RETAILING 

store  dealers  in  this  country.  C.  C.  Parlin  stated  in  1913 
that  there  were  1,140  department  stores  in  the  country,  each 
of  whose  sales  averaged  over  $200,000  annually,  and  he  esti- 
mated that  fully  40  per  cent  of  the  dry-goods  and  ready-to- 
wear  goods  of  the  country  were  marketed  through  these 
1,140  stores.^ 

Naturally  the  department  store  business  is  largely  con- 
centrated in  the  larger  cities.  Greater  New  York  has  nearly 
a  hundred  establishments  of  this  character  doing  a  business 
aggregating  more  than  $200,000,000  per  year.  In  New 
York  the  sales  of  some  of  the  largest  stores  are  in  excess 
of  $20,000,000  per  year.  One  store  in  Philadelphia  prob- 
ably sells  $30,000,000  per  year.  It  is  commonly  stated  that 
the  largest  store  in  Chicago  has  sales  amounting  to  $35,000,- 
000.  The  largest  in  Boston  sells  $20,000,000,  and  the  larg- 
est in  St.  Louis  nearly  $10,000,000  worth  of  merchandise 
annually. 

The  modern  development  of  the  department  store  is  not 
exclusively  American.  In  Paris  there  are  at  least  nine  or 
ten  large  stores  of  this  type.  Besides  the  Bon  Marche  al- 
ready mentioned  as  the  pioneer,  there  are  the  Louvre,  Gal- 
leries Lafayette,  Printemps,  Trois  Quartiers,  Maison  de 
Blanc,  Cour  Batave,  Samaritaine,  and  Dufayel's.  In  Lon- 
don, Harrod's,  Whiteley's,  and  Selfridge's  stores  are  well 
known.  H.  G.  Selfridge,  however,  is  an  American,  a  former 
resident  of  Chicago,  and  at  one  time  a  partner  of  Marshall 
Field.  The  private  department  stores  do  not  succeed  as  w£ll 
in  England  as  on  the  Continent,  for  in  England  their  func- 
tions are  at  least  partly  performed  by  the  big  co-operative 
societies'  stores,  of  which  there  are  branches  in  nearly 
all  parts  of  Great  Britain.  In  Germany  this  system  of 
merchandising  is  well  developed  and  the  number  of  establish- 
ments great.     One  of  the  stores  in  Berlin,  Wertheim's,  is 

1  Parlin,  C.   C,  "The  Merchandising  of  Textiles,"   1913. 


i 


THE  DEPARTMENT  STORE 


199 


said  to  occupy  the  most  remarkable  merchandising  building 
in  the  world.  Department  stores  are  also  to  be  found  in 
China,  Japan,  Argentina,  Australia,  and  Canada. 

The  department  store  has  come  into  existence  in  re- 
sponse to  an  economic  need.  It  has  succeeded  and  has  con- 
tinued to  hold  its  place,  and  to  gain  ground  because  it  has 
occupied  a  certain  point  of  advantage  in  the  distribution  of 
goods.  Its  future  in  one  form  or  another  in  large  cities 
seems  secure. 

The  characteristic  things  about  department  store  mer- 
chandising are: 

First.  Many  departments  or  sections  under  one  roof. 
Stores  are  not  usually  classed  as  department  stores  unless 
they  have  at  least  a  score  of  departments  and  from  this 
number  to  a  hundred  or  more.  One  of  the  largest  is  said 
to  have  over  250  sections  or  departments, 
-y  Second.  Special  conveniences  offered  to  all  shoppers 
whether  they  buy  or  not.  Under  the  guise  of  '*  service  "  the 
modem  department  store  has  come  to  be  a  sort  of  club 
house  and  amusement  place  for  women.  One  ordinarily 
finds  in  these  stores  rest  rooms,  silence  rooms  for  nerve- 
tired  shoppers,  reading  and  writing  rooms,  restaurants,  in- 
formation bureaus,  post  offices,  telephone  booths,  and  tele- 
graph stations  for  the  unrestricted  use  of  all.  In  some 
stores  lectures,  demonstrations,  musical  programs,  moving 
picture  shows,  and  even  operas  and  plays  are  given  fre- 
quently. In  a  few  cases,  the  department  store  has  served 
as  an  employment  agency  for  domestic  help,  as  a  house  and 
estate  agency,  and  even,  recently,  as  a  market  for  corpora- 
tion securities.  Some  department  stores  conduct  banking 
departments  accepting  the  deposits  of  their  customers  and 
employees  and  paying  interest  on  these  deposits,  although 
this  form  of  service  is  now  somewhat  under  a  cloud  because 
of  the  recent  failures  of  large  Eastern  department  stores 


200  ECONOMICS  OF  RETAILING 

having  banking  departments.  Hair  dressing  and  manicure 
parlors,  and  children's  barber  shops  are  regular  adjuncts  of 
the  largest  stores  in  all  cities.  Play  rooms  for  children,  lost 
and  found  departments,  and  dental  parlors  are  also  com- 
mon. None  of  these  services  have  any  direct  connection 
with  the  sale  of  goods  in  the  store.  Most  are  gratuitous, 
and  where  direct  expenses  are  involved  as  in  the  restau- 
rants, hair  dressing,  and  manicure  parlors,  the  charges  made 
are  usually  only  sufficient  to  cover  those  expenses,  and  no 
special  attempt  is  made  to  get  a  profit  therefrom.  All  of 
these  services  are  given,  however,  to  attract  people  to  the 
store,  and  to  get  them  into  the  habit  of  coming,  so  that 
their  wants  may  be  satisfied  by  merchandise  purchased 
there. 

Several  special  forms  of  service  in  direct  connection  with 
the  sale  of  goods  are  also  common.  Free  delivery,  sales 
on  credit,  C.  O.  D.  sales,  goods  sent  to  the  homes  of  cus- 
tomers on  approval,  guarantee  of  *'  money  back  if  not  satis- 
fied," and  ''  goods  freely  exchanged,"  are  so  common  now  as 
to  merit  no  more  than  a  remark.  While  many  of  these  serv- 
ices are  extended  to  their  customers  by  specialty  or  one-line 
stores,  none  have  gone  farther  than  the  big  department 
stores,  and  none  could  profitably  do  so. 

Third.  The  employment  of  specialists  in  the  advertis- 
ing department.  The  great  volume  of  advertising  run  by 
the  larger  stores  is  intended  to  draw  people  to  the  store  and 
to  facilitate  the  sale  of  goods.  It  is  intended  to  take  the 
place  of  much  of  the  expert  salesmanship  that  might  other- 
wise be  necessary  to  effect  sales.  Department  stores  are  the 
greatest  users  of  newspaper  advertising  space.  W.  C.  Free- 
man, advertising  manager  of  the  New  York  Globe,  recently 
estimated  the  amounts  expended  annually  by  some  of  the 
principal  stores  for  advertising  as  follows ;  ^ 

i  Printers'  Ink,  Oct.  9,  1913, 


THE  DEPARTMENT  STORE  201 

John   Wanamaker's,    Philadelphia $450,000 

John  Wanamaker's,  New  York 700,000 

Gimbel's,  New  York   700,000 

U  R.  H.  Macy  &  Co.,  New  York 350,000 

Altman's,  New  York  300,000 

Stern  Bros'.,  New  York  300,000 

Jordan  Marsh  Co.,  Boston   300,000  plus 

Shepard,  Norwell  Co.,  Boston  300,000  plus 

Houghton  &  Button,  Boston 300,000  plus 

This  expense  is  said  to  amount  to  from  2  to  5  per  cent 
of  the  total  sales  of  the  stores  named. 

Another  feature  about  department  store  advertising  in 
addition  to  its  magnitude,  is  its  specific,  concrete  presenta- 
tion, of  information  about  goods.  Style,  quality,  and  price 
have  been  the  lines  along  which  the  chief  appeals  for  busi- 
ness have  been  made;  and  of  these  three,  price  has  been 
the  one  most  emphasized.  Comparisons  of  "  Our  special 
price "  with  "  Regular  price,"  now  happily  not  so  much 
used  as  formerly  by  the  largest  stores,  have  been  heralded 
in  black  face  type  for  years  from  one  side  of  the  continent 
to  the  other. 

The  usual  reasons  for  these  price  offerings,  where  rea- 
sons were  given,  have  sometimes  been  that  the  store  has 
either  overbought  and  wishes  to  unload  at  a  sacrifice,  or  has 
had  some  misfortune  such  as  a  fire  and  must  sell  its  goods  at 
greatly  reduced  prices,  or  more  commonly  that  it  has  been 
especially  fortunate  in  its  purchases.  It  may  almost  be  said 
that  the  larger  part  of  department  store  business  seems  to 
have  been  built  up  on  bargain  advertising.  It  is  certainly 
in  this  field  that  some  of  the  most  remarkable  successes  have 
been  made. 

On  account  of  the  tremendously  rapid  development  of 
machine  production  during  the  last  fifty  years,  it  has  not 
been  possible  for  any  producer  to  predict  the  strength  of 
demand  for  the  kind  of  goods  that  he  planned  on  getting 
out.  New  industries  have  been  springing  into  the  field, 
competition  has  grown  keen  over-night,  demands  themselves 


202  ECONOMICS  OF  RETAILING 

have  both  developed  and  changed  rapidly.  Channels  of 
distribution  have  not  been  well  defined  and  not  always  open, 
to  all.  In  consequence  of  such  unsettled  conditions,  every 
producer  has  had  to  take  chances  on  the  possibilities  of 
marketing  his  goods  successfully.  Many  miscalculations 
have  resulted.  In  such  cases  the  producers  have  been  glad 
to  unload  their  unprofitable  surpluses  at  even  less  than  the 
costs  of  production;  in  fact,  they  have  been  glad  to  take  any- 
thing they  could  get. 

Department  stores  with  their  own  buying  organizations 
able  to  buy  direct  from  producers  have  been  best  fitted  to 
take  advantage  of  these  manufacturers'  sacrifices.  With 
ready  cash  and  the  organization  for  taking  care  and  dis- 
posing of  such  goods,  the  buyers  of  these  stores  have  been 
able  to  pick  up  many  lots  of  goods  of  this  kind.  By  thei^ 
direct  merchandising  methods,  they  have  found  an  opening 
in  the  economic  system  of  production  and  distribution  of 
goods  that  other  concerns  had  either  failed  to  see  or  could 
not  benefit  from.  Their  function  here  is  to  pick  up  surplus 
stocks  in  the  hands  of  producers  and  dealers,  stocks  not 
wanted  by  the  regular  trade.  Out  of  stocks  thus  bought^ 
up,  the  department  store  has  been  able  to  make  bargains  an 
actuality. 

Because  acceptable  job  lots  of  this  kind  are  not  always 
available  for  all  of  the  departments  of  a  department  store, 
it  is  sometimes  necessary  to  adopt  other  means  to  get  goods 
at  prices  lower  than  those  paid  by  other  dealers.  The  de- 
partment store  with  plenty  of  capital  has  been  able  to  buy 
for  cash  large  quantities  of  goods  and  get  larger  discounts 
than  would  be  given  to  those  who  buy  only  in  small  quanti- 
ties. In  many  cases  these  quantity  discounts  have  been  over- 
large  from  an  economic  standpoint.  The  temptation  of  the 
big  order  and  the  competition  of  other  producers  have 
tended  to  drive  the  supply  prices  down  even  below  the  point 


THE  DEPARTMENT  STORE  203 

one  might  reasonably  expect  in  view  of  the  savings  to  the 
producer  in  getting  rid  of  his  product  in  large  lots. 

In  still  other  cases  the  department  store  buyer  has  been 
able  to  get  his  goods  at  unusually  low  prices  by  ordering 
them  in  large  lots  in  advance  of  manufacture,  thus  lessen- 
ing the  manufacturer's  risk,  and  guaranteeing  work  for  his 
plant  during  seasons  that  might  otherwise  be  dull.  In  these 
ways  the  big  department  store  has  been  able  to  get  many 
consignments  of  goods  at  figures  that  have  permitted  them 
to  sell  at  bargain  prices  and  still  make  a  good  profit. 

But  as  merchandising  conditions  become  more  stable, 
and  as  it  becomes  more  nearly  possible  to  predict  the  de- 
mand for  a  certain  line  of  goods,  either  by  careful  analysis 
of  all  conditions  that  may  affect  it,  or  by  producing  only  to 
order,  as  is  now  largely  done  by  many  concerns  in  the  shoe 
and  clothing  trades,  the  opportunity  of  picking  up  job  lots 
of  goods  of  dependable  quality  becomes  relatively  rare. 
Surpluses  of  products  that  the  producers  cannot  market 
through  the  regular  channels  of  trade  because  of  mistaken 
judgment  as  to  demand  are  not  so  frequent.  Goods  of- 
fered in  this  way  are  now  very  likely  to  be  defective  or  poor 
in  quality.  Defective  goods,  however,  have  entered  very 
largely  into  the  retail  markets  especially  through  the  medium 
of  the  cheaper  grade  of  department  stores.  While  these 
"  goods  "  have  been  heralded  as  bargains,  the  advertising  in 
such  cases  does  not  belong  to  the  realm  of  truthful  mer- 
chandising. * 

In  some  cases,  it  is  generally  believed  that  department 
stores  have  gone  farther  than  this  in  their  advertising,  and 
where  no  bargains  have  existed,  the  advertising  writers 
have  conceived  them  in  their  own  minds  and  published  them 
as  realities. 

Untruthful  advertising  is  not  peculiar  to  department 
stores.     Specialty  stores  have  sinned  in  this  respect  as  much 


204  ECONOMICS  OF  RETAILING 

as  department  stores,  differing  only  in  the  degree  to  which 
they  have  used  advertising.  Mention  of  the  matter  is  made 
here  simply  because  department  stores  are  such  great  adver- 
tisers as  compared  with  all  other  forms  of  retailing  estab- 
lishments. The  better  classes  of  department  stores  are 
strongly  opposed  to  such  advertising,  and  it  is  even  claimed 
by  some  that  the  *'  bargain  "  as  an  appeal  is  losing  its  power 
to  draw  customers.  ^ 

"  Newspaperdom  "  says :  "  One  variety  of  lie  that  has 
had  its  day  of  effectiveness  is  the  '  bargain-sale '  lie.  Ad- 
vertisements of  bargains  are  still  printed,  but  the  public 
is  almost  as  impervious  to  them  as  the  side  of  a  battleship 
would  be  to  the  fire  of  a  battery  of  pea-shooters.  The  de- 
lusion still  exists  among  many  merchants  that  this  is  not  so, 
but  no  such  delusion  exists  among  the  great  merchants." 

George  Hough  Perry,  former  advertising  manager 
,of  John  Wanamaker,  Gimbel  Bros,  and  Siegel  Cooper,  is 
reported  to  have  said  that  "  bargain  sales  are  passing  rapidly 
into  the  limbo  of  exploded  ideas,  that  all  future  tendencies 
will  be  toward  emphasizing  not  price,  but  what  can  be  had 
for  the  price,  and  that  *  bargain '  sales  are  obviously  and  ; 
necessarily  built  upon  lies." 

J.  J.  Stokes,  advertising  manager  of  Marshall  Field 
&  Co.,  says  that  "  nine-tenths  of  all  bargain  advertising  is 
made  up  of  falsehoods  and  exaggerations  and  that  100  lines 
of  advertising  concerning  the  publicity  of  a  business  house 
is  worth  100  pages  of  *  bargain '  falsehoods.". 

Fourth.  The  main  factor  of  department  store  efficiency 
apart  from  its  buying  and  advertising  powers,  already  re- 
ferred to,  is  its  specialized  form  of  organization.  In  this 
respect  the  modern  department  store  differs  as  day  differs 
from  night  from  the  old  time  general  merchandise  store. 
In  the  latter,  there  was  no  specialized  organization.  Clerks 
soldgoods  in  all  or  nearly  all  departments,  and  accounts 


THE  DEPARTMENT  STORE  205 

or  records  were  not  separately  kept.  For  the  most  part, 
when  the  store  made  a  profit,  the  owner  could  only  guess 
what  lines  of  goods  produced  it,  and  his  guess  was  as  likely 
to  be  wrong  as  right.  Possibly  department  store  system 
would  be  impracticable  in  the  general  merchandise  store, 
but  the  lack  of  it  was  the  weakness  of  the  latter,  and  the 
presence  of  it  the  basis  of  the  peculiar  strength  of  the  former. 

In  a  department  store,  each  department  or  section  is  con- 
sidered as  a  separate  specialty  store  or  shop.  Its  accounts 
are  kept  separate,  and  under  normal  conditions  it  must  stand 
on  its  own  feet ;  that  is  to  say,  it  must  pay  its  own  expenses, 
and  its  prorated  share  of  the  general  expenditure  for  rent, 
light,  heat,  power,  insurance,  office  up-keep,  and  so  on.  In 
addition  to  this  it  must  seek  to  make  a  net  profit. 

Each  department  has  its  own  organization  for  buying 
and  selling  goods,  consisting  in  the  former  case  of  its  man- 
ager or  buyer  and  necessary  assistants  such  as  assistant 
buyer,  head  of  stock,  and  salespeople.  In  these  respects  the 
department  is  exactly  like  a  specialty  store,  but  the  account- 
ing, advertising,  stockroom  work,  credits  and  collections, 
handling  of  the  cash  paid  out  and  received,  and  the  de- 
livery of  the  goods  is  done  for  the  individual  department  by 
special  departments  organized  to  serve  all  of  the  merchan- 
dise departments  in  the  store.  The  specialty  store,  selling 
one  line,  has  its  own  accounting,  advertising,  credit,  cash, 
and  delivery  departments,  but  in  a  department  store  of 
forty  sections,  for  example,  there  is  but  one  of  each  of 
these  departments  to  serve  all  of  the  forty  sections. 

The  charts  on  page  206  will  make  these  relations  more 
clear  and  indicate  the  difference  between  specialty  store  or- 
ganization and  department  store  organization.  In  Chart  1 
the  single  merchandise  department  of  the  specialty  store  is 
served  by  all  of  the  surrounding  departments.  In  Chart  2 
the  merchandise  departments.  A,  B,  C,  D,  E,  F,  G,  and  H 


2o6 


ECONOMICS  OF  RETAILING 


Charts  Showing  Internal  Organization  of  Specialty 
AND  Department  Stores 


I.     Specialty  Store  Organization. 


Accounfing 


CixditB  and 
Cd  lections 


Delivery 


Supervision 
Gen1.  Manager 


Mercbandi 
Dzparimeni' 


Customers 


:of5tone 


Stock  V\brk 


Advertising 


2.     Department  Store  Organization. 


Accounting, 


Cnedits  and 
Collections 


Delive-ry 


Supervision 
Qen'l.  Manager 


Care  of  5torB 


MenchandigeDsportments 


Customers 


Stock -room 
Work 


Adverlising 


THE  DEPARTMENT  STORE  207 

are  all  served  by  the  same  number  of  special  departments, 
excepting  that  one  new  one  has  been  added,  viz.,  merchan- 
dise manager.  This  official  acts  as  a  sort  of  head  buyer  for 
all  departments,  apportions  the  buying  funds  among  the 
departments,  advises  the  buyers,  gives  approval  or  disap- 
proval to  department  sales  policies,  and  so  on. 

We  need  not  go  further  into  detail  here  concerning  the 
organization  of  department  stores.  Such  studies  have  al- 
ready been  made  by  others.^  But  it  may  be  of  interest  as 
throwing  light  on  the  character  of  these  organizations  to 
trace  an  article  through  a  store,  from  the  time  it  arrives  until 
it  is  sold  and  delivered. 

After  the  purchase  of  the  article  by  the  buyer  it  is  sent 
to  the  store  and  delivered  in  the  receiving  room.  Here  all 
the  goods  are  unpacked,  and  after  their  qualities,  condition, 
and  quantities  are  noted,  are  passed  on  to  the  stock  room. 
The  goods  are  received  by  the  head  of  the  stock  room,  and 
prices  are  marked  by  the  buyer,  or,  generally,  by  one  of 
his  assistants  from  the  merchandise  department  managed 
by  the  buyer.  The 'article  is  next  placed  in  reserve  in  the 
stock  room  until  needed  in  the  store.  At  the  proper  time  it 
is  brought  out  by  a  stock  boy  and  given  to  the  head  of 
counter  "or  head  of  stock  in  the  department.  It  is  next  sold 
by  the  salesman,  the  cash  is  received  and  sent  to  the  cashier, 
and  the 'article  is  sent  to  the  wrapping  desk  to  be  inspected 
and  wrapped,"  and  if  the  article  is  to  be  delivered  by  the 
store,  it  is  next  addressed  and  then  sent  to  the  delivery  room. 
Here  it  is  selected  from  the  mass  of  packages  that  arrive 
there  and  is  placed  in  a  bin  that  is  set  aside  for  the  part  of 
the  city  in  which  the  purchaser  resides.  One  bin  is  pro- 
vided for  each  section  of  the  city  to  which  deliveries  are 
made.  From  the  bin  the  article  is  taken  by  the  driver  of 
the  delivery  wagon  who  is  usually  accompanied  by  a  boy, 

3  See  bibliography  at  end  of  chapter. 


2o8  ECONOMICS  OF  RETAILING 

known  as  the  driver's  boy.  When  the  home  of  the  pur- 
chaser is  reached,  the  boy  runs  to  the  door  with  the  parcel, 
makes  the  delivery ;  and  then  the  store's  work  so  far  as  that 
particular  article  is  concerned  is  completed,  unless  the  cus- 
tomer makes  a  complaint  about  it,  returns  it  for  exchange, 
or  demands  her  money  back.  In  this  case  other  machinery 
is  started  which  we  need  not  trace  out  here. 

The  modern  department  store  is  a  wonderful  business 
mechanism.  At  its  best  it  represents  very  high  efficiency  as 
a  trade-getting  and  profit-making  institution.  Its  advantages 
in  competition  over  the  specialty  or  one-line  stores  He  in  its 
conveniences  for  shoppers,  the  many  lines  under  one  roof, 
the  special  services  that  are  so  attractive  to  many  people, 
and  the  displays  of  goods  on  all  sides  in  the  many  different 
lines.  Such  displays  suggest  purchases  to  customers  and 
bring  about  sales  that  one-line  shops  could  not  effect  at  all. 
The  department  store  method  of  distribution  actually  stimu- 
lates new  demand,  by  showing  to  customers  things  about 
which  they  might  not  otherwise  know  anything. 

Another  advantage  of  the  department  store  is  its  division 
of  labor  and  the  employment  of  the  best  people  obtainable  as 
heads  of  departments,  to  plan  and  suggest  schemes  for 
carrying  on  the  store  work.  In  the  best  department  stores 
great  care  is  exercised  in  the  selection  of  employees,  in 'train- 
ing them  specifically  for  their  work,  and  in  placing  them 
where  they  will  be  most  efficient.  For  the  routine  work 
the  department  store  is  able  to  get  along  with  the  services 
of  cheaper  help  than  most  one-line  stores,  just  because  of 
the  fine  division  of  labor  and  because  the  work  of  each  em- 
ployee is  carefully  planned  and  standardized.  Heads  of 
departments  draw  salaries  and  incomes  that  average  con- 
siderably higher  apparently  than  the  average  incomes  of 
specialty  store  managers.  Buyers  receive  from  $2,500  up 
to  $25,000  per  year,  and  in  some  of  the  better  stores  $5,000 


THE  DEPARTMENT  STORE  209 

to  $10,000  is  the  average.  For  the  higher  positions,  such  as 
merchandise  manager  and  store  superintendent,  even  higher 
salaries  are  paid.  It  is  known  that  two  or  three  department 
stores  have  paid  salaries  as  high  as  $50,000  per  year.  The 
average  salaries  for  the  rank  and  file  are,  however,  somewhat 
low,  and  the  reason  for  this  is  largely  that  the  type  of  per- 
sonal efficiency  required  is  not  very  high.  A  change  is  to 
be  noted  in  this  respect,  however,  for  as  competition  grows 
keener,  the  demand  for  personal  salesmanship  and  skilful 
personal  management  of  every  detail  increases.  No  plan, 
no  matter  how  well  worked  out,  can  substitute  automatic 
service  for  human  service  in  dealing  with  customers.  Care- 
ful planning  goes  a  long  way,  and  in  the  past  twenty-five 
years  has  progressed  rapidly,  but  when  the  limits  of  mechan- 
ical devices  and  system  are  reached,  store  managers  will 
have  to  give  their  attention  to  bringing  up  the  standard  of 
their  employees  by  some  sort  of  training  or  apprenticeship 
perhaps,  but  more  likely  by  systematic  education  for  this 
kind  of  work. 

The  department  store  usually  has  the  advantage  of  being 
the  centrally  located  store  in  the  retail  district.  The  archi- 
tecture, especially  in  its  modern  types,  is  in  every  way  help- 
ful to  its  purpose  of  selling  goods.  As  already  shown,  the 
department  store  has  buying  power  and  advertising  power 
far  in  excess  of  most  specialty  stores.  Moreover,  it  has  a 
prestige  in  the  public  mind,  carefully  cultivated  in  all  cases, 
well  earned  in  some  cases,  that  goes  far  to  make  it,  as  an 
institution,  successful.  Big  business  appeals  to  the  imagina- 
tion of  the  people  of  the  twentieth  century,  especially  to  the 
people  of  the  middle  and  lower  classes.  ^The  big  store  sug- 
gests class  and  distinction.  To  trade  there  to  a  certain  ex- 
tent confers  distinction.^  The  big  store's  automobile  de- 
livery truck  calling  at  one's  residence  heightens  this  effect. 

On  the  other  hand,  in  the  great  cities,  a  large  part  of  the 


2IO  ECONOMICS  OF  RETAILING 

trade  of  the  ultra-rich  and  fashionable  goes  not  to  the  de- 
partment stores  but  to  the  exclusive  little  specialty  shops. 
The  department  store  is  fitted  to  transact  business  with  the 
masses,  but  with  certain  exceptions,  not  with  the  classes.] 
The  department  store  cannot  as  a  rule  build  a  large  enough] 
trade  on  exclusive  lines  to  make  the  business  pay.     Handling 
such  goods  is  more  the  function  of  specialists  who  have] 
unusual  taste  and  fitness  for  selecting  goods,  displaying  them, 
and  giving  the  service  that  touches  the  vanity  of  wealthy] 
shoppers.     Department  store  employees  are  not  commonly] 
equipped  to  do  this  well,  and  where  an  attempt  is  made  to 
get  such  trade,  it  is  usually  by  classifying  the  stock  into 
departments  of  higher  and  lower  grade  goods,  providing 
special  entrances  from  the  outside  of  the  store  leading  to 
each,  and  by  employing  salespeople  especially  fitted  to  serve 
in  the  more  exclusive  lines.     Such  trade  payS  well  in  profit 
when  it  can  be  obtained,  but  at  best  such  customers  are  fickle 
in  their  demands,  peculiarly  subject  to  whim,  careless  in  their 
obligations,  and  often  unreasonable.     Only  a  few  depart- 
ment stores  have  successfully  handled  this  class  of  trade. 
The  department  store  is  essentially  a  store  for  the  masses. 
There  are  a  number  of  economies  in  department  store^ 
management  not  possible  in  the  specialty  store.     Having  one 
accounting  department,  one  advertising  department,  one  de- 
livery department,  one  credit  department,  and  so  on,  makes 
it  possible  to  serve  all  of  the  departments  or  sections  in  the 
store.     How  much  these  savings  amount  to  cannot  be  stated 
exactly,  as  there  are  no  figures  available,  but  it  would  seem 
that  certain  advantages  must  result  from  this  arrangement. 
An  efificient  credit  department  serving  forty  or  fifty  subsid- 
iary merchandising  departments  is  able  to  accept  more  credit, 
and  take  more  chances,  because  it  is  in  a  position  to  employ 
more  effective  collection  methods,  and  is  better  able  to  en- 
force payment  of  slow  or  doubtful  accounts.     A  specialty 


THE  DEPARTMENT  STORE  21 1 

store  would  either  have  to  refuse  credit  to  a  much  larger  num- 
ber of  people  seeking  credit  or  else  shoulder  a  much  larger 
loss  from  bad  debts,  simply  because  it  cannot  give  the 
special  attention  to  credits  that  the  department  store  credit 
manager  is  expected  to  and  does  give.  In  a  certain  sense 
these  special  departments,  credit,  delivery,  advertising,  and 
so  on,  are  giving  service  to  a  combination  of  co-operative 
merchandising  establishments.  The  advantages  urged  in 
favor  of  co-operative  delivery  for  retail  stores,  for  example, 
are  in  a  measure  realized  in  the  department  store. 

On  the  other  hand,  some  questions  may  occur  as  to 
just  how  far  these  economies  go,  and  to  what  extent  they 
are  counterbalanced  by  the  disadvantages  of  aggregation, 
such  as  a  department  store  represents.  The  average  cost  of 
doing  business  in  a  department  store  seems  to  be  consider- 
ably higher  than  the  average  for  one-line  establishments,  of 
course  'excepting  the  high  costs  of  the  few  exclusive  shops 
catering  to  the  super-rich.  On  comparing  the  items  of  ex- 
pense in  department  stores  with  those  of  specialty  stores 
one  finds  that  rent  is  higher,  advertising  is  higher,  delivery 
is  higher,  salaries  run  about  the  same,  and  bad  debt  losses 
about  the  same.* 

4  Many  popular  writers  on  department  stores  have  assumed  that  the  depart- 
ment store  method  of  distributing  goods  is  much  more  economical  than  any  other. 
It  is  remarkable  that  so  many  have  taken  this  view  with  hardly  a  fact  to  warrant 
it.  Some  official  bodies  of  a  public  nature  have  expressed  the  same  view  upon 
equally  groundless  bases.  As  an  example  of  this  sort  of  thinking,  the  United 
States  Industrial  Commission  in  its  final  report   (Vol.   19,  p.   549)   may  be  quoted: 

"  If  rightly  managed,  the  department  store  must  be  able  to  make  great  econo- 
mies in  rent,  cost  of  superintendence,  office  expenses,  and,  possibly,  in  clerk  hire." 

But  in  the  testimony  given  before  the  commission  there  was  nothing  to  lead 
to  such  a  conclusion.  For  example,  S.  M.  Woodward,  a  Washington  department 
store   manager,  testified   as   follows    (Vol.   VII,   p.   736) : 

"  Q.  You  believe  you  can  sell  goods  cheaper  than  the  one-line  stores  can, 
or  do  you  know  that  you  can? 

"  Mr.  Woodward's  answer:  '  I  do  not  think  we  ever  claimed  that.  I  know  that 
the  quantity  of  goods  that  we  purchase  in  many  lines  enables  us  to  do  that.'  " 

A  few  moments  before  Mr.   Woodward  was  asked: 

"  Does  the  department  store,  from  the  economical  standpoint,  require  less 
help  to  do  the  same  business  than  in  the  old  way  of  several  stores?  " 

"A.  No;  it  requires  more.  That  evidently  does  not  seem  reasonable  to 
you,  but  we  have  to  wait  upon  people  now  with  sf>ecially  trained  help  in  more 
than   half   of   our  departments.     Of  60  to  80  per  cent  of  them  that  is  true.     In 


212  ECONOMICS  OF  RETAILING 

Why  rent  averages  higher  is  explained  in  another  chap- 
ter. Advertising  is  highejr  because  the  department  store 
must  reach  out  farther  for  business.  It  has  many  rnore 
competitors  of  many  kinds  than  the  average  one-Hne  store. 
It  uses  its  advertising  to  assist  in  making  quick  sales.  In  a 
measure  it  substitutes  skilled  advertising  for  skilled  sales- 
manship. An  advertising  expense  of  from  2%  to  5  per  cent 
of  sales  is  not  uncommon  in  department  stores,  but  above 
the  average  for  specialty  stores.  Delivery  though  done  for 
a  number  of  departments,  hence  cheaper  than  if  done  for  a 
single  shop  doing  business  with  the  same  customers,  tends 
to  be  higher  because  the  department  store  delivers  over  a 
much  wider  territory  than  the  average  one-line  store,  and 
probably  delivers  a  much  larger  percentage  of  the  goods  pur- 
chased. 

Another  factor  of  expense  in  department  stores  that 
places  them  at  a  disadvantage  is  the  gratuitous  service  they 
give  to  all  who  come.  Competition  forces  department  stores 
into  these  things.  There  is  no  escape.  The  tendency  seems 
to  be  to  add  more  and  more  of  it.  Trade  must  be  gained, 
but  the  only  way  to  gain  it  is  by  getting  the  people  to  come 
to  the  store.  The  service  factors  bring  people  to  the  stor€ 
and  must  therefore  be  employed.  The  more  special  service 
that  is  offered  by  one  store,  the  more  other  stores  must  offer 

other    words,    a    customer    is    not    a   customer,    unless    she    is    waited    upon   intelli- 
gently." 

Later  Mr.  Otto  Young,  manager  of  "  The  Fair,"  was  asked  (Vol.  VII,  p.  696) : 
"  Q-  What  is  the  economy  of  many  departments -under  one  management?  " 
"  A,  The  economy  is  largely  in  the  quantity  of  goods  that  we  can  purchase, 
as  against  the  small  merchant.  We  buy  our  goods  for  cash.  No  department 
store  that  has  to  buy  goods  on  credit  ever  made  a  success.  Department  stores 
do  away  largely  with  the  middlemen,  the  jobbers.  They  buy  nine-tenths  of 
their  goods  direct  from  the  manufacturer;  they  do  not  have  to  pay  two  or  three 
profits  before  the  goods  get  to  them.  A  man  that  wants  to  buy  a  dozen  —  a 
manufacturer  would  not  bother  with  him  to  sell  him  a  dozen;  he  must  go  to  a 
jobber.  That  jobber  must  make  10  or  15  per  cent  on  the  goods;  therefore  they 
cost  the  buyer   more   money." 

Other  department  store  managers  gave  similar  testimony,  yet  the  Industrial 
Commission  concluded  that  "  If  rightly  managed,  the  department  store  must  be 
able  to  make  great  economies  in  rent,  cost  of  superintendence,  office  expenses, 
and,  possibly,  in  clerk  hire!  " 


THE  DEPARTMENT  STORE  213 

*in  order  to  hold  their  trade  and  gain  customers.  It  is  hard 
to  see  just  where  this  tendency  is  going  to  end. 

The  expenditure  for  salaries  in  department  stores  runs 
about  the  same  as  in  specialty  shops.  This  can  probably  be 
explained  by  the  high  salaries  paid  to  the  managers,  and  to 
the  fact  that  it  is  difficult  in  a  big  store  to  apportion  em- 
ployees to  the  various  departments  in  the  exact  proportions 
necessary  to  do  the  work  properly.  More  or  less  waste  of 
time  occurs,  all  of  which  the  store  must  pay  for.  Small 
stores  have  such  losses  too,  but  the  work  is  not  so  fully 
divided  into  departments,  and  employees  not  employed  in 
selling  can  usually  be  set  to  work  at  something  else.  This 
item  of  loss  is  not  by  any  means  uniform.  Efficient  stores 
both  large  and  small  attempt  to  reduce  it  to  a  minimum,  but 
it  seems  that  small  stores  are  able  to  do  so  more  fully  than 
the  big  department  stores. 

The  department  store,  even  when  planned  for  the  high- 
est efficiency,  is  a  place  where  there  may  be  a  thousand  leaks. 
Hired  employees  are  proverbially  Jess  diligent  and  watchful 
than  people  in  business  for  themselves.  Carelessness,  loss  of 
materials,  soiling  materials,  spoilage,  leakage,  breakage,  and 
so  on  are  likely  to  occur  more  freely  in  the  big  store  than  in 
the  small  store.  Only  eternal  vigilance  can  keep  such  losses 
down,  and  there  seems  to  be  more  danger  of  slackening  in 
vigilance  under  hired  eyes  than  under  proprietor's  eyes. 
The  department  store  must  spend  much  money  and  time  in 
developing  its  system,  in  making  out  its  accounts,  and  in 
working  up  statistics  to  show  just  how  the  concern  is  work- 
ing, while  in  the  small  store,  the  manager-owner  can  carry 
much  of  such  information  in  his  head,  and  need  spend  no 
time  in  working  it  out  on  paper.  This  economy  is  probably 
carried^ too  far  by  most  small  retailers.  Perhaps  much  could 
be  gained  by  the  specialty  store  manager  by  borrowing  some- 
thing from  the  department  store  manager's  thorough-going 


214  ECONOMICS  OF  RETAILING 

manner  of  getting  at  the  exact  facts  of  the  business.  But 
whether  this  is  true  or  not,  the  fact  remains  that  the  depart- 
ment store  spends  a  lot  of  money  in  getting  up  information 
that  the  small  one-line  retailer  is  getting  along  without. 

Finally,  the  department  store  type  of  salesmanship  is 
usually  weak.  There  are  exceptions  and  notable  ones,  but 
the  general  rule  is  poor  salesmanship.  The  specialty  stored 
that  attempts  to  be  up-to-date  differs  from  department  stores 
markedly  in  this  respect,  although  both  classes  of  stores 
would  benefit  largely  if  systematic  improvement  and  edu- 
cation of  salespeople  could  be  effected.  As  it  is,  much  of 
the  efficiency  of  the  department  store  gained  by  its  location, 
its  window  displays,  its  advertising,  its  thorough  and  sys- 
tematic sales  plans  is  lost  simply  because  the  salesman  fails 
in  his  important  work  with  the  customer.  Not  only  are  op-- 
portunities  for  making  sales  lost  through  this  failure,  but 
when  sales  are  made,  they  are  often  wrongly  made.  The 
wrong  things  are  sold  and  when  the  right  things  are  sold 
they  are  sent  out  improperly  fitted  and  demonstrated.  The 
result  is  discomfort,  disutility,  and  dissatisfaction.  The  re- 
tail store  whose  great  social  function  it  is  to  serve  the  pub-' 
lie  or  that  much  of  the  public  that  comes  to  it,  fails  to  per- 
form its  service  in  a  creditable  way  because  the  employee 
whose  duty  it  is  to  represent  the  store  in  dealing  with  the 
customer  doesn't  know  how  his  work  should  be  done.  Bad 
retail  salesmen  are  plentiful,  but  more  so  in  department 
stores,  it  seems,  than  in  specialty  or  one-line  stores.  Thfe 
fault  is  not  the  salesman's,  but  rather  it  is  that  of  the  stores 
in  neglecting  to  improve  the  human  factor,  and  that  of  so- 
ciety, in  not  providing  education  in  its  schools  for  people 
who  enter  this  line  of  work. 

Bibliography 

The  Department  Store  and  Its  Opportunities  for  Boys  and  Young  Men. 
The  Vocation  Bureau,  Boston,  1912. 


THE  DEPARTMENT  STORE 


215 


Butler,  E   B.    Saleswomen  in   Mercantile  Stores,   Ch.  IV.    Charities 

Publication  Committee,  New  York,  1912. 
Puffer,  J.  Adams.    Vocational  Guidance,  Ch.  XII.    Rand,  McNally  & 

Company,  Chicago,  1913. 
Daniels,  Wm.   Cooke.    The  Department  Store   System,  Denver,   1900. 
Cherington,  P.  T.    Advertising  as  a  Business  Force,  pp.  158  ff. 
Phillips,  W.  B.    How  Department  Stores  Are  Carried  On.     1900. 
Selling  Forces.     Curtis  PubHshing  Company,    pp.  103-132. 
Golden  Book  of  the  Wanamaker  Stores,  1861-1911. 
Modern  Merchandising,  Vol.  I. 

Wanamaker,  John.    The  Evolution  of  a  Mercantile  Business. 

Stokes,  J.  J.     Organization  of  the  Department  Store. 

Basch,  J.    The  Merchandiser  in  the  Department  Store. 
Modern  Merchandising,  Vol.  V. 

Stokes,  J.  J.    The  Department  Store. 
Modern  Merchandising,  Vol.  VIII. 

Schneider,  J.     Department  Store  Advertising. 
U.  S.  Industrial  Commission,  Vol.  VII,  1900. 

Testimonies  of  Messrs.  S.  W.  Woodward,  John  Wanamaker,  Otto 
Young  and  Chalifoux. 
Brewer,   F.    N.    Some    Features   of   Department    Store    Management. 

Ann.  Am.  Acad.  19 :320. 
Davis,    H.    The    Department    Store    at    Close    Range.    Everybody's, 

17  :312. 
Dennis,  John,  Jr.     Marshall  Field.    Everybody's,  14 :291. 
Adams,  S.  H.     The  Department  Store.    Scribner's  Magazine,  21 :4. 
The  Department  Store  in  the  East.    Arena,  22:321. 
Richardson,  A.  S.    The  Modern  Woman's  Paradise.     Woman's  Home 

Companion,  Sept.,  1911. 
Big  vs.  Little  Store.    Printers'  Ink,  April  25,  1912. 
Private  Department  Store  Brands  vs.   Nationally  Advertised  Brands. 

Printers'  Ink,  Oct.  31,  1912. 


CHAPTER  XIII 

CHAIN-STORE  SYSTEMS 

A  chain-store  system,  as  the  term  implies,  is  an  organiza- 
tion composed  of  a  number  of  retail  stores  operating  under 
one  management.  There  are  many  such  organizations 
which  have  existed  for  a  long  time,  but  during  the  last  thirty 
years  there  has  been  a  marked  development  both  in  size  and 
number  of  such  concerns.  The  chain-store  system  of  today 
is  a  typically  modern  factor  in  the  distribution  of  goods. ^ 

Hurd  and  Zimmerman  in  Printers'  Ink,  September  to 
December,  1914,  estimated  that  there  v^ere  more  than  3,000 
chain-store  systems  in  the  United  States,  and  that  in  these 
chains  there  v^ere  in  excess  of  25,000  stores.  Boyd's  City 
Dispatch  offers  to  supply  lists  of  chain  stores  aggregating 
10,000  systems.  There  are  no  official  figures  showing  the 
extent  of  chain-store  development.  The  names  of  a  few  of 
the  best  known  systems  in  the  country  are  given  on  the  op- 
posite page. 

1  Dates    of    establishment    of    some    of    the    great    chain-store    systems: 

Great   Atlantic   &   Pacific   Tea   Co 1859 

F,    W.    Woolworth    Company     1879 

Jas.    Butler    Company     1882 

Hanan    Shoe    Stores    1885 

Acme    Tea    Stores    1887 

New  York  &  London  Drug  Co 1897 

Cannon     Stores     1899 

United    States   Cigar   Stores    1901 

Penney     Stores     1901 

Duke    C.    Bowers    Stores    1903 

United    Drug    Co 1903 

2l6 


CHAIN-STORE  SYSTEMS 


Chain-Store  Systems  in  the  United  States 


217 


Grocery  Chains  Stores 

Great  Atlantic  &  Pacific  Tea  Company,  Jersey  City 807 

Acme  Tea  Company,  Philadelphia 315 

James  Butler  Grocery  Company,  New  York 238 

Childs  &  Company,  Camden,  N.  J 230 

Grand  Union  Tea  Company,  Brooklyn  200 

Kroger  Grocery  &  Baking  Co.,  Cincinnati   182 

M.  O'Keefe,  Inc.,  Gardner,  Mass 146 

Wm.  Butler,  Philadelphia  140 

Bell  Company,  Philadelphia  130 

Robins6n  &  Crawford,  Philadelphia  130 

National  Grocery  Company,  Jersey  City  126 

Direct  Importing  Co.,  Inc.,  Boston 125 

Thos.   Roulston,   Brooklyn    121 

John  T.  Connor  Co.,  Boston  110 

G.  M.  Dunlop  Co.,  Philadelphia  106 

Five  and  Ten  Cent  Stores  A 

F.  W.  Woolworth  Co 744          /w     { 

S.  H.  Kress  &  Co 147       A\^ 

C.  S.  Kresge  Co 124        ^  .v^ 

J.  G.  McCrory  Co 115             ^ 

Tobacco  and  Cigar  Stores 

United  Cigar  Stores  2  r-rrrs 1100 

Drug  Chains 

Riker-Hegeman  Co.,  New  York   105 

Louis  K.  Liggett  Co.,  Boston  52 

^■^wl  Drug  Company,  San  Francisco  20  y^ 

Square  Drug  Co.,  Syracuse,  N.  Y 20 

Marshall  Drug  Co.,  Cleveland 15 

Shoe  Chains 

R.  H.  Long,  Framingham,  Mass 82 

W.  L.  Douglas  Shoe  Co.,  Brockton,  Mass 79 

-^egal  Shoe  Co.,  Boston 47 

Hanover  Shoe  Co.,  New  York  52 

•^Florsheim  Shoe  Co.,  Chicago   30 

Sorosis  Shoe  Co.,  Brooklyn  30 

Hanan  &  Son,  New  York 18 

Beck  Shoe  Co.,  New  York  15 

Hat  Stores 

Kaufman  Bros.,  New  York 40 

Truly  Warner,  New  York  24 

Irving  Hat  Co.,  New  York  24 

Sarnoff  Bros.,  New  York  16 

2  The  United  Cigar  Stores  Company  of  America  operates  its  1100  stores  in 
nearly  200  cities  in  the  United  States.  Some  of  these,  however,  are  owned  by 
companies  subsidiary  to  the  United  Cigar  Stores  Company  of  America,  such  as 
the  United  Cigar  Stores  of  New  Jersey,  United  Cigar  Stores  of  Illinois,  and 
United   Cigar    Stores   of   Rhode   Island. 


2i8  ECONOMICS  OF  RETAILING 

In  addition  to  the  above,  there  are  chains  to  be  found 
dealing  in  confectionery,  jewelry,  meats,  dairy  products, 
liquors,  furniture,  clothing,  hardware,  automobiles  and  au- 
tomobile supplies,  millinery,  corsets,  flowers,  books,  etc. 

Chain-Store  Systems  in  Europe^ 

Food  Stores  or  Shops  Shops 

Lipton's  Ltd 469 

Home  &  Colonial'  Stores  688 

Maypole  Dairy  Co.  Ltd 835 

Shepherd's   Ltd 100 

Pearks.  Ltd 200 

T.  Seymour,  Mead  &  Co.  Ltd 56 

United  Kingdom  Tea  Co.,  Ltd 25 

Lyons  &  Co.,  Ltd 170 

Aerated  Bread  Co.  Ltd 140 

Express  Dairy  Co.,  Ltd 103 

Eastman's    Ltd 800 

British  Tea  Table  Co 

Alfred  Pearce  Tea  Shops  

Pearce  &   Plenty    

Kaiser's  Kaffee  Geschaft,  Germany   1000 

Drug  Stores 

Boot's  Chemists    565 

Parke's  Drug  Stores,  Ltd 34 

Lewis  &  Burrows,  Ltd 25 

Henry  Hodder,  Ltd 17 

Thompson  &  Capper  10 

Shoe  Shops 

Freeman,  Hardy  &  Willis   460 

Lilley  &  Skinner    75 

Public  Benefit  Boot  Co 120 

S.   Hilton  &  Sons    129 

Stead  &  Simpson,  Ltd 235 

W.  Abbott  &  Sons,  Ltd 13 

W.  Abbott  &  Sons,  Ltd.,  France 7 

A.    &    W.    Paterson     42 

Greenlees  &  Sons    165 

John    Greenlees    12 

Tobacco  Shops 

Salmon   &  Glucksteim,  Ltd 139 

Alfred  Baker  &  Co.,  Ltd 49 

Department  Stores 

Tietz  Department  and  Dry  Goods  Stores,  Germany 88 

Chain-store  systems  may  be  classified  according  to  own- 
ership as  follows : 

S  Except  where   otherwise  specified  these  are  in  England. 


CHAIN-STORE  SYSTEMS  219 

Retailers'  chains 
'/Jobbers'  chains 
Manufacturers'  chains 

Retailers'  chains  have  in  many  cases  been  formed  simply 
by  gradual  expansion,  the  owner  beginning  with  one  store 
and  adding  others  as  circumstances  permitted.  Many  re- 
tailers have  been  so  successful  with  their  first  store  that  they 
have  established  branches,  sometimes  conducted  in  co-opera- 
tion with  the  parent  store  and  sometimes  independently. 

In  a  few  noteworthy  instances  retailers'  chains  have  been 
formed  by  the  establishment  of  a  corporation  with  the  pur- 
pose of  acquiring  and  conducting  a  number  of  retail  stores 
under  a  definite  chain-store  plan  of  organization. 

In  still  other  cases  chains  have  been  formed  by  the  union 
of  several  retailers  into  an  organization,  usually  of  corporate 
form,  each  retailer  taking  stock  in  the  company,  and  in  re- 
turn permitting  his  store  to  pass  into  the  new  organization. 
Some  of  these  retailers'  co-operative  chains  have  enormous 
memberships. 

The  object  in  view  in  the  organization  of  retailers'  chain- 
store  systernjT  h^^been  largely  to  reap  the  profits  of  increased 
buying  power,  of  heightened  efHciency  in  advertising,  in  bet- 
ter handling  of  credits  and  collecting,  and  in  more  profit- 
able methods  in  handling  and  selling  merchandise.  For 
many  merchants  who  have  acquired  or  established  branch 
stores,  the  additional  store  units  have  served  as  a  means  of 
investment  for  surplus  funds  and  as  a  field  for  the  exercise 
of  exclusive  ability  not  fully  taken  up  in  the  single  institu- 
tion. 

The  ability  to  buy  for  less  than  the  ordinary  retailer  can 
buy,  is  commonly  accepted  as  the  chief  advantage  of  the 
chain  store.  In  systems  where  the  buying  is  done  for  all 
of  the  stores  from  a  central  ofifice  or  by  organization  buy- 
ers, it  is  obvious  that  their  demand  for  quality  commands 


220  ECONOMICS  OF  RETAILING 

the  strongest  interest  of  producers  and  wholesale  suppliers 
In  a  competitive  market  such  buyers  are  usually  able  to  ge 
the  lowest  possible  prices  and  are  able  to  profit  by  every  pos- 
sible quantity  discount. 

Frequently  the  chain-store  buyers  pass  over  the  whole 
salers  and  buy  direct  from  producers,  in  fact,  perform  theii 
ownjoWbing  functions.     In  such  cases  they  are  usually  ac 
corded  the  prices  made  to  jobbers  and,  if  current  reports  b( 
true,  are  sometimes  given  even  lower  prices.^     Producer 
feel  under  necessity  to  make  every  possible  concession  foi 
the  reason  that  the  buyer  for  a  large  chain  represents  a  pow- 
erful factor  in  distribution,  one  whose  future  trade  is  con- 
sidered worth  fighting  for,  and  one  who  can  easily  transfer 
his  trade  from  place  to  place.     The_^ompetition  for  the 
chain-store  business  is,  therefore,  keen. 

Some  of  the  chain-store  systems  carry  on  their  jobbing 
functions  much  the  same  as  an  ordinary  jobbing  house. 
Warehouses  are  provided,  and  goods  are  stored,  and  deliv-; 
ered  to  the  various  stores  only  upon  purchase  and  charge. 
Goods  charged  to  any  unit  store  bear  a  percentage  burden  of 
buying  and  warehousing  expense,  corresponding  in  a  measure 
to  the  margins  added  by  regular  jobbers  to  the  costs  of  their 
goods  when  selling  to  retail  dealers.  In  groceries  this  mar- 
gin is  said  to  run  from  2%  to  6  per  cent  of  the  value  of  ^he 
goods.  In  other  cases  the  burden  of  the  buying  expense  is 
prorated  among  the  stores  directly,  sometimes  in  proportion 
to  their  sales,  sometimes  in  proportion  to  their  ability  to 
stand  the  charge. 

Jobbers'  chains  have  come  into  existence  in  various  ways. 
In  some  cases,  jobbers  have  been  forced  to  buy  out  retail 
stores  from  certain  of  their  retail  debtors  to  save  themselves 
from  loss  such  as  would  occur  if  the  store  were  to  go  on  in 
the  hands  of  the  former  owners  and  managers.     A  good 

4  Hurd  &  Zimmerman  in  Printers'  Ink,  Nov.   19,  1914,  pp.   64,  flf. 


CHAIN-STORE  SYSTEMS  221. 

many  jobbing  houses  have  a  number  of  retail  stores  that  they 
virtually  own  and  which  they  are  nursing  along  in  the  hope 
of  building  up  the  business  or  until  a  competent  manager  can 
be  found  who  will  buy  the  store.  Management  of  these 
stores  calls  for  the  same  methods  and  practices  as  are  re- 
quired in  other  chain  systems.  In  some  cases  when  break- 
ing into  new  territory,  jobbers  are  forced  to  acquire  stores 
of  their  own  in  order  to  find  local  outlets  for  their  goods. 
Stores  already  in  such  localities  may  not  willingly  take  on 
new  lines,  and  a  jobbers'  own  store  system  may  be  the  only 
means  of  reaching  the  consumer. 

In  still  other  cases,  the  jobber  may  find  his  trade  slipping 
from  him  either  because  of  cut-throat  competition  with  other 
jobbers,  or  because  manufacturers  are  selling  directly  to  re- 
tailers. In  the  ordinary  course  of  events  either  of  these  proc- 
esses might  eliminate  the  jobber.  To  save  himself  and  to 
insure  a  constant  market,  his  only  recourse  may  be  to  estab- 
lish a  chain  of. retail  stores  to  handle  his  goods.  This  adap- 
tation of  the  jobber  to  new  conditions  is  going  still  farther 
in  a  few  instances.  Not  only  are  chains  of  stores  acquired 
but  also  manufacturing  plants,  so  as  to  assure  both  a  market 
and  a  product  to  place  on  the  market.  Jobbers  thus  have 
become  both  retailers  and  manufacturers,  as  well  as  whole- 
salers. It  seems  likely  that  this  integration  of  distributive 
processes  is  likely  to  go  on  in  several  lines,  those,  particu- 
larly, in  which  the  jobbing  functions  are  diminishing  in  im- 
portance. 

There  are  a  number  of  manufacturers'  chain-store  sys- 
tems, nearly  all  of  which  had  their  origin  in  an  inability  to 
find  a  satisfactory  market  through  the  regular  channels  of 
trade.  Among  the  lines  of  goods  represented  in  manufac- 
turers' chains,  one  finds  several  brands  of  shoes,  confection- 
ery, baked  goods,  hats,  gasoline  and  kerosene,  sewing  ma- 
chines, cash  registers,  adding  machines,  typewriters,  office 


222  ECONOMICS  OF  RETAILING 

furniture,  automobile  supplies,  corsets,  gloves,  sporting^ 
goods,  phonographs,  paper  novelties,  etc.  Some  of  these 
goods  probably  could  not  be  marketed  through  regular  retail] 
stores.  Others  are  not  so  marketed  because  of  dissatisfac-l 
tion  due  to  any  one  of  several  causes,  such  as  competition] 
with  other  goods  on  dealers'  shelves;  price-cutting  among 
dealers  on  the  manufacturer's  standardized  lines;  inability  ofl 
the  average  retailer  and  retail  salesman  to  give  intelligent! 
salesmanship  to  the  line;  unwillingness  of  the  average  re- 
tailer to  put  in  a  complete  line  such  as  the  manufacturer 
considers  necessary  to  give  the  consumer  a  fair  idea  of  his 
goods ;  and  unwillingness  or  inability  of  the  average  retailer 
to  give  the  additional  service  sometimes  found  necessary  to 
make  sales  stick. 

It  is  probable  that  scarcely  any  manufacturer  desires  to 
conduct  his  own  distributive  system  if  the  service  obtained 
from  the  regular  channels  is  at  all  satisfactory.  A  chain 
of  retail  stores  ties  up  a  great  deal  of  capital.  In  some  lines 
it  takes  several  times  as  much  capital  to  market  them,  as  it 
does  to  manufacture  them.  John  H.  Hanan,  of  Hanan  & 
Son,  states  that  it  takes  three  times  as  much  capital  to  conduct 
the  chain  stores  as  it  does  to  run  the  factories  that  supply 
them.^  The  management  of  a  chain  involves  grave  prob- 
lems. The  chances  of  failure  are  high.  The  profits  from 
retailing  are,  on  the  whole,  not  so  great  as  those  from  manu- 
facturing, considering  both  under  favorable  circumstances. 
In  spite  of  these  draw-backs  some  of  the  manufacturers' 
chains  are  the  best  examples  of  present  day  efficient  chain- 
store  management.  It  is  altogether  probable  that  the  future 
will  see  many  more  such  organizations. 

There  is  another  type  of  chain-store  organization  that 
might  properly  be  discussed  under  this  heading,  but  which 
must  be  omitted  here.     This  is  the  consumers'  co-operative 

6  Printers'  Ink,  Mar,   21,  1912. 


I 


CHAIN-STORE  SYSTEMS  223 


hains.  Such  concerns  have  not  as  yet  made  much  progress 
in  this  country,  but  in  Europe  they  are  numerous  and,  ac- 
cording to  most  reports,  very  successful.  Evolution  in  Eu- 
rope seems  to  be  quite  definitely  in  the  direction  either  of 
privately  owned  chain-store  systems,  or  consumers'  co-opera- 
tive concerns.  In  their  methods  of  doing  business,  the  co- 
operative and  the  private  chain  are  much  the  same.  An 
analysis  of  the  methods  in  the  one  will  serve  as  a  general 
outline  for  the  other.  The  competition  of  these  two  classes 
of  concerns  is  in  some  cases  very  keen,  and  it  is  said  that  the 
co-operatives  in  England,  where  co-operative  distribution  is 
at  its  best,  fear  nothing  so  much  as  the  growth  of  "  the 
multiple  shop,"  as  the  private  chain  store  is  called  there. 

The  chain-store  unit  works  for  the  same  end  as  the  indi- 
vidually owned  retail  store  —  namely,  the  best  possible  net 
returns.  To  succeed  in  getting  a  good  net  return  the  chain 
store  usually  works  for  a  big  volume  on  a  relatively  small 
stock,  resulting  in  a  rapid  turnover.  In  this  respect  some  bf 
the  chain  stores  are  very  successful.  In  the  average  city 
grocery  store  the  stock  turns  perhaps  ten  or  twelve  times  per 
year.  In  some  of  the  best  chain  grocery  stores,  forty  turns 
per  year  is  not  unknown.  In  the  average  drug  store  three  oi*" 
four  turns  per  year  is  considered  good,  but  the  most  success- 
ful drug  chain  has  a  turnover  of  twelve  times  per  year.  In 
a  cigar  and  tobacco  store  the  average  is  from  four  to  ten 
turns,  while  in  one  of  the  most  successful  stores  in  a  well 
known  chain,  the  stock  turns  fifty  times  per  year.  The 
syndicate  five  and  ten  cent  stores  average  ten  to  twelve  turns 
per  year,  while  the  average  for  individually  owned  stores  is 
only  from  eight  to  ten.^ 

Chain-store  systems,  because  of  their  large  capital  invest- 
ments, cail_afford  to  employ  the  most  efficient  executives 
available  even  though  their  salaries  must  be  high.     Thus 

6  Printers'  Ink,  Dec.  3,  1914,  p.  66  ff. 


224  ECONOMICS  OF  RETAILING 

chain  stores  are  likely  to  have  better  executive  management 
and  more  efficient  methods  planned  for  doing  the  work  of  ^ 
the  stores  than  the  ordinary  individually  owned  stores.  ^- 
^rt  attention  is  given  to  such  problems  as  hiring  and  train- 
ing employees,  writing  advertising,  preparing  window  trims, 
store  service,  and  elimination  of  leaks  and  wastes. 

/^ost  chain  stores,  though  not  all,  are  noted  as  price-cut- 
ters in  well  known,  standard  kinds  of  merchandise,  such  as 
nationally  advertised  goods,  or  staple  merchandise  of  un- 
varying quality.  Most  of  them  make  cheaper  prices  the  ad- 
vertised argument  for  trade  in  competition  with  the  individ- 
ually owned  stores.  An  occasional  one,  such  as  the  Owl: 
Drug  Company,  emphasizes  service  to  the  customer  rather 
than  low  prices.  Many  chain  stores  supplement  their  cut-* 
price  arguments  and  other  advertising  features  by  use  of 
trading  stamps,  premium  plans  and  other  schemes  to  attract 
and  hold  trade. 

In  the  competition  of  chain  stores  with  individually : 
owned  stores  there  seems  to  be  certain  advantages  in  favor 
of  the  former,  first,  the  chain-store  system  as  a  rule  repre- 
sents greater  buying  power,  and  its  buyers  are  enabled  to 
take  advantage  of  prices  that  are  usually  given  only  to  job- 
bers. Savings  thus  made  are,  however,  counterbalanced  to 
a  certain  extent  by  necessary  expenses  in  redistributing  the 
goods  to  the  individual  stores  of  the  system,  providing  stor- 
age and  insurance  for  warehoused  goods,  paying  interest  on 
the  money  invested  in  them,  and  defraying  extra  cost  of 
handling.  As  much  as  possible  of  this  expense  is  avoided 
by  having  goods  shipped  from  the  factories  to  the  stores 
direct,  but  this  method  cannot  always  be  carried  out  advan- 
tageously. Second,  certain  superior  economies  in  account- 
ing, in  the  delivery  of  goods,  in  advertising,  and  in  the  grant- 
ing of  credit  and  making  collections  seem  to  be  more  prac- 
ticable in  chain-store  management  than  in  individually  owned 


CHAIN-STORE  SYSTEMS 


225 


stores.  Third,  the  chain-store  system  with  many  units  scat- 
tered widely  can  to  a  certain  extent  eHminate  losses  due  to 
unsalable  goods  accumulating  in  any  particular  place  by 
having  the  slow-selling  goods  moved  to  other  stores  where 
they  may  sell  better.  For  example,  a  chain-store  system 
dealing  in  men's  furnishings  may  find  that  a  certain  line  of 
neckwear  does  not  appeal  to  customers  in  one  community 
at  all,  whereas,  in  another  town  that  same  line  may  prove 
quite  popular.  By  transferring  the  goods  from  the  former 
to  the  latter  place,  losses  by  mark-downs  are  prevented. 
The  individually  owned  store  has  no  such  opportunity  to 
transfer  its  goods.  What  is  bought  for  the  store  must  be 
sold  from  it,  and  if  a  mistake  is  made  in  buying,  the  only 
remedy  is  to  sell  at  a  sacrifice. 

In  competition  with  individually  owned  retail  stores,  if  it 
comes  to  a  desperate  conflict,  the  chain  store  has  a  decided 
advantage.  The  chain  store  being  a  member  of  a  group  can 
concentrate  its  competition  at  any  point,  undersell  its  indi- 
vidually owned  retail  store  rival,  sell  below  cost  indefinitely 
if  it  so  desires,  and  make  up  its  deficits  caused  by  such  cut- 
throat methods  at  that  point,  by  profits  made  in  other  stores 
in  other  places.  Theoretically  it  can  continue  this  process 
until  it  has  driven  its  competitors  out  of  business  or  cowed 
them  into  submission. 

The  chain-store  system  has  another  advantage  in  com- 
petition with  the  individually  owned  stores  in  that  it  can  han- 
dle private  brands  of  its  own,  advertise  them,  and  build  up 
a  market  for  them.  In  most  cases,  the  small  one-store  re- 
tailer is  not  in  a  position  to  develop  a  business  in  private 
brands.  But  the  standard  brands  handled  by  the  independ- 
ent retailer,  may  be  selected  and  used  by  chain  stores  as  loss 
leaders  to  attract  trade,  and  the  independents  have  no  similar 
method  of  retaliation.  The  chain-store  system  usually  has 
access  to  supplies  of  the  same  kinds  of  goods  as  the  regular 


226  ECONOMICS  OF  RETAILING 

retailers,  but  the  regular  retailers  do  not  have  like  opportu- 
nity to  exploit  the  chain-store  products.  Therefore,  the 
chain  store  has  unusual  opportunity  to  use  the  goods  handled 
by  the  regular  retailers  as  competing  weapons. 

The  large  chain-store  system  with  jobber  or  factory  con- 
nections is  assured  of  a  supply  of  goods  under  all  circum- 
stances. The  ordinary  retailer  buying  in  the  open  market 
is  not  always  certain  to  find  further  supplies  when  he  wants 
them.  In  times  of  severe  competition,  sources  of  supply  as 
well  as  the  outlets  to  the  consumers  are  important  points  of 
attack.  In  respect  to  supplies  jobbers'  and  manufacturers' 
chains  are  obviously  much  more  secure  than  the  ordinary 
one-store  concern. 

On  the  other  hand,  chain  stores  suffer  certain  disadvan- 
tages in  comparison  with  individually  owned  stores.  The 
average  cost  of  doing  business  in  chain  stores  is  apparently 
lower  than  in  average  individually  owned  stores.'^  There 
is  no  question  but  that  the  average  chain  store  is  more  effi- 
ciently and  economically  conducted  than  a  large  number  of 
individually  owned  stores,  but  this  is  far  from  saying  that 
chain-store  efficiency  and  economy  compares  favorably  with 
the  best  conducted  individually  owned  retail  stores.  It 
seems  entirely  probable  that  the  best  conducted  chain  stores 
must  fall  behind  the  best  conducted  individually  owned 
stores  in  this  respect. 

The  chain-store  system  can  probably  never  secure  the 
same  degree  of  interest  from  its  local  store  managers,  espe- 
cially when  they  work  on  a  salary  basis,  that  the  single  store 
receives  from  its  owner.  It  is  much  more  difficult  to  main- 
tain the  close  personal  touch  with  employees  that  is  so  nec- 
essary to  successful  store  practice  in  a  chain  than  in  a  store 
where  employees  work  under  the  direct  supervision  of  the 
owner.     The  systematic  methods  of  doing  the  work  of  the 

7  Printers'  Ink,  Dec.  17,  1914,  p.  20  flf. 


I 


CHAIN-STORE  SYSTEMS 


227 


chain  store,  so  thoroughly  worked  out  by  the  executives,  may 
easily  pass  over  the  dead-line  of  red  tape  and  become  a  bur- 
den rather  than  a  productive  help.  The  difficulty  of  finding 
efficient  store  managers  vs^ho  will  work  for  chain  systems  is 
admitted  by  every  chain-store  concern.  Though  the  routine 
work  may  be,  and  usually  is  done  by  low-priced  help,  the  cost 
for  efficient  managers,  supervisors,  and  executives  is  high, 
and  as  competition  grows  keener,  the  cost  for  both  classes  of 
help  must  rise  accordingly. 

The  organization  of  a  chain  store  must  be  fitted  to  its 
purpose.  Great  attention  must  be  given  to  details,  some  of 
which  can  be  cared  for  from  the  central  headquarters,  while 
others  must  be  arranged  locally.  The  organization  must 
provide  for  the  strictest  authority  and  for  the  most  careful 
distribution  of  duty  while  making  full  allowance  for  all 
local  demands.  Thus  the  chain-store  system  must  be  some- 
thing more  than  a  machine  in  order  to  make  good.  It  must 
be  a  machine  with  an  intelligent  mind  active  in  every  part. 
Initiative  is  in  demand  at  every  point.  In  all  of  these  re- 
spects the  individually  owned  store  possesses  natural  advan- 
tages over  the  chain  which,  if  utilized,  would  go  far  toward 
helping  it  to  hold  its  own  in  competition  with  the  chain. 

In  addition  to  the  regular  organization  found  within 
each  store  of  a  chain  —  an  organization  very  similar  to  that 
of  any  good  retail  store  —  and  in  addition  to  the  corporate 
organization  with  its  financial,  executive  and  legislative  de- 
partments, most  chain-store  systems  make  special  provision 
for  the  following  activities  —  in  some  cases  by  the  establish- 
ment of  special  departments: 

1.  Selecting  and  acquiring  good  store  locations,  making 
purchases,  arranging  rentals,  disposing  of  unused  property, 
attending  to  repairs,  renewals,  insurance,  etc. 

2.  Equipping  the  stores  with  furniture  and  fixtures. 


228  ECONOMICS  OF  RETAILING 

3.  Supplying  the  stores  with  merchandise. 

4.  Advertising  the  stores  and  their  merchandise. 

5.  Planning  window  decorations  and  store  displays. 

6.  Employing  and  training  help  for  the  stores,  making 
promotions,  transfers,  and  so  on. 

7.  Devising  sales  plans  and  ideas. 

8.  When  trading  stamps  or  premium  plans  are  used,  ar- 
ranging the  details  in  a  proper  manner. 

9.  Keeping  accounts  and  statistics  of  the  system. 
10.  Auditing. 

In  the  case  of  some  chain-store  concerns,  some  of  the 
functions  named  above  are  carried  on  by  subsidiary  corpora- 
tions whose  stock  is  owned  by  the  parent  company.  For 
example,  in  the  United  Cigar  Stores  Company,  the  purchase 
and  rental  of  sites  for  stores,  the  repairs,  improvements,  and 
sub-letting,  is  all  cared  for  by  a  corporation  known  as  the 
United  Merchants  Realty  and  Improvement  Company ;  while 
the  window  displays  for  all  of  the  stores  and  agencies  are 
prepared  by  the  United  Window  Display  Company.  Agen- 
cies of  the  United  Cigar  Stores  Company  are  cared  for  by 
the  United  Cigar  Stores  Agencies  Company.  The  company 
in  charge  of  the  real  estate  and  leases  has  proved  a  profitable 
part  of  the  concern,  showing  earnings  of  $650,000  to 
$700,000  annually.^  These  profits  accrue  from  favorable 
purchases  and  sales,  leasing  large  buildings  only  parts  of 
which  are  used  as  cigar  stores,  the  remainders  being  sub-let 
to  other  tenants.  The  premium  department  is  conducted  by 
another  corporation  entirely  separate  from  the  United  Cigar 
Stores  known  as  the  United  Profit  Sharing  Corporation. 

The  store  equipment  department  in  chain-store  concerns 
apportions  the  space  for  store  use  and  provides  proper  fix- 
tures, often  the  same  for  all  stores  in  the  chain.     The  win- 

8  From    "  Weekly    Market   Letter,"    Apr.    15,    1915,    issued   by   Jones    &    Baker, 
Chicago.     See  also,  Printers'  Ink,  Nov.  12,  1914,  p.  58  ff. 


CHAIN-STORE  SYSTEMS  229 

dow  display  department  works  up  the  ideas  and  supplies  the 
materials  for  making  attractive  window  displays. 

The  reporting  system  developed  by  the  accounting  and 
statistics  departments  of  large  chain-store  systems,  such  as 
the  United  Cigar  Stores,  or  the  Regal  Shoe  Company,  is 
wonderfully  well  adapted  to  indicate  the  exact  condition  of 
the  business  in  each  store  almost  at  any  given  moment. 

Daily  reports  showing  total  sales  and  sales  by  depart- 
ments on  lines  handled,  are  required  from  every  store  in 
most  chain  systems.  The  daily  report  usually,  includes  or- 
ders for  new  stock  to  replenish  lines  sold  out.  Some  con- 
cerns require  that  all  sales  slips  and  price  tags  be  sent  to  the 
central  office  along  with  the  daily  report  sheet.  Cash  taken 
in  by  the  store  is  usually  deposited  daily  in  a  local  bank  and 
the  certificate  of  deposit  is  mailed  at  once  to  the  treasurer 
of  the  company.  From  these  daily  reports  the  executives  of 
the  company  may  learn  definitely  what  is  the  status  of  each 
store,  its  daily  sales,  what  lines  are  selling  best,  what  lines 
poorest,  what  each  salesman  is  doing,  what  profits  are  being 
made,  and  what  stock  is  left  on  hand.  The  slightest  change 
in  custom  or  demand  may  be  noted  almost  instantly. 

Weekly  summaries  are  sometimes  required  from  the  local 
managers,  and  weekly  statements  from  the  individual  sales- 
people in  the  form  gf  claims  for  bonuses  or  prizes,  and  so 
on.  These  reports  serve  as  checks  on  the  daily  reports.  In 
most  chain  stores,  inventories  are  taken  frequently,  gener- 
ally once  per  month.  In  some  cases  these  inventories  are 
taken  at  regular  times,  in  others  only  on  special  call  from 
headquarters.  The  reports  of  stock  on  hand  in  the  inven- 
tories serve  as  another  check  on  the  operations  of  each  store. 
The  daily  reports  as  summarized  and  carried  out  in  the  ac- 
counting department  show  exactly  what  goods  have  been 
ordered  and  what  goods  sold,  and,  therefore,  what  goods 
should  remain.     The  inventory  report  shows  whether  the 


230  ECONOMICS  OF  RETAILING 

daily  reports  were  made  correctly  or  not,  or  whether  an] 
stock  has  been  taken  from  the  store  in  any  way  without 
proper  accounting. 

Every  possible  precaution  is  taken  to  prevent  and  to  dij 
cover  dishonesty  if  any  should  occur.     The  reports  already 
named  serve  this  purpose,  and  in  addition  there  is  the  worl 
of  the  traveling  auditors,  the  supervision  by  district  man- 
agers, and  the  work  by  special  investigators,  many  of  whom 
work  in  much  the  same  way  as  detectives.     The  employee  of 
a  chain  store  knows  that  if  he  works  hard  and  successfully, 
he  will  be  well  rewarded,  but  that  he  is  being  watched  con- 
stantly for  crookedness. 

Not  only  must  each  store  and  employee  make  a  report, 
but  a  certain  standard  of  results  is  set  before  each.  Before 
establishing  any  store,  an  estimate  is  made  of  its  probable 
business  based  upon  the  number  and  class  of  passers-by,  their 
probable  consuming  capacity,  their  habits,  and  the  amount 
and  kind  of  competition.  This  estimate  is  set  before  the 
store  as  its  first  year's  standard,  and  the  manager  of  the 
store  is  held  responsible  for  getting  at  least  that  amount  of 
business.  This  is  known  as  the  store's  quota.  After  the 
first  year  this  quota  is  determined  upon  the  basis  of  the 
previous  years'  experience  and  the  possibilities  of  increasing 
the  trade.  The  quota  for  the  store  m^  include  not  only  a 
figure  to  represent  the  total  sales  that  must  be  aimed  at,  but 
also  the  amount  of  profits  that  must  be  gained.  This  means 
that  the  manager  of  the  store  must  give  his  attention,  not 
only  to  pushing  sales  generally,  but  must  give  special  atten- 
tion to  pushing  the  sales  of  goods  that  show  the  largest 
profits.  The  sales  quota  may  go  still  further  and  set  stand- 
ards for  the  sales  in  various  lines,  or  in  various  parts  of  the 
store.  For  example,  in  the  Regal  Shoe  Stores  there  is  said 
to  be  a  total  sales  quota,  a  tptal  profits  quota,  and  quotas  for 


CHAIN-STORE  SYSTEMS  231 

each  department  of  goods  handled.  The  sale  of  shoe  trees 
should  average  one  pair  to  every  four  pair  of  shoes  sold,  and 
sales  of  shoe  polish  must  average  one  bottle  to  every  three 
pairs  of  shoes  sold. 

Not  only  are  quotas  established  for  every  store  but  also 
for  every  salesman.  The  quota  is  the  standard  for  the  sales- 
man,'^s  accomplishment.  If  he  cannot  make  sales  corre- 
sponding to  the  quota  set  for  him,  he  must  give  way  to  some- 
one who  can. 

While  every  attempt  is  made  to  secure  the  accomplish- 
ment of  what  has  previously  been  determined  as  possible,  and 
employees  are  held  strictly  to  account  for  this,  usually  sev- 
eral incentii^es  are  adopted  to  get  every  man  to  do  his  best. 
In  the  first  place,  fairly  good  salaries  are  paid.  On  the  aver- 
age, it  seems,  although  the  writer  relies  only  on  his  own  ob- 
servation for  this,  that  the  salaries  for  the  same  classes  of 
labor  average  somewhat  higher  in  chain  stores  than  in  indi- 
vidual stores.  The  chain  store  system  is  in  many  cases  able 
to  use  a  lower  grade  of  labor,  more  young  and  inexperienced 
people,  for  example,  than  the  ordinary  stores.  The  syste- 
matic division  of  .labor  in  the  majority  of  chain  stores  per- 
mits this.  Thus,  while  the  chain  store  pays  more  for  this 
class  of  labor  than  other  stores,  the  total  pay-roll  for  the 
chain  store  may  not  be  as  high  as  in  the  other  stores  doing 
an  equal  amount  of  business.  It  seems  quite  certain  that 
chain  stores  must  pay  good  salaries  to  all  of  their  store  man- 
agers and  other  executive  officers.  Their  incomes  must 
compare  favorably  with  what  they  could  earn  as  independent 
store  managers,  or  the  company  could  not  keep  them  in  em- 
ploy nor  hold  their  loyalty. 

Many  chain  stores  go  further  and  give  their  employees 
bonuses  or  premiums  for  accomplishment  above  the  stand- 
ard or  quota.     Some  concerns  never  grant  regular  salary  in- 


232  ECONOMICS  OF  RETAILING 

creases.  All  increases  in  earnings  must  come  in  the  form  oj 
bonuses  or  premiums.  Prize-giving  systems  are  commoi 
In  attempting  to  get  everybody  interested  in  doing  more  thj 
before,  store  is  set  in  competition  v^ith  store,  man  agains 
man.  Every  year,  each  store  must  do  better  than  it  did  th< 
preceding  year.  Every  man  is  encouraged  to  make  hii 
record  for  the  coming  year  better  than  for  the  year  preced^ 
ing.  Prizes  and  premiums  are  offered  for  successes  in' 
making  higher  records.  In  the  most  successful  chain  stores 
these  bonus  and  prize-giving  systems  are  so  extended  as  to 
give  to  every  employee  some  chance  to  earn  a  prize. 

To  stimulate  these  contests  and  increase  sales_efficiency< 
v^eekly  bulletins  or  house  organs  giving  the  status  of  every 
store  and  every  employee  in  the  contests  are  published  and 
sent  to  all  of  the  stores.  Along  with  this  information,  the 
management  also  conveys  inspiration  and  encouragement  by 
means  of  lively,  interesting  addresses,  bulletins,  and  printed 
articles,  and  practical  instruction  through  educational  letters 
and  sales  manuals.  Every  attempt  is  made  to  encourage 
greater  endeavor. 

There  is  a  maxim  among  some  chain-store  system  man- 
agers that  runs  as  follows :  "  As  is  the  manager  so  is  the 
local  store."  Special  effort  is  made  to  get  "  live  wires  "  for 
such  positions,  and  much  is  done  to  keep  them  "  live,"  after 
they  have  been  given  positions  at  the  heads  of  stores.  The 
manager  of  a  store  generally  shares  substantially  in  every 
prize  or  bonus  that  comes  to  the  store.  He  is  often  given  or 
required  to  hold  a  partner's  share  in  the  store,  or  stock  own- 
ership. In  the  company's  records  the  store  in  which  he  is 
employed  is  named  after  him.  He  is  taken  into  the  com- 
pany's confidence,  and  his  advice  and  suggestions  are  sought. 
All  of  these  things  tend  to  make  the  store  manager  a  very 
loyal  employee  qf  the  chain-store  system.  It  is  recognized 
that  here  is  the  weakest  element  in  chain-store  manage- 


CHAIN-STORE  SYSTEMS  233 

ment  —  a  hired  employee  rather  than  an  owner  at  the  heacik^ 
of  a  store. 

If  one  may  judge  from  the  development  of  chain  stores 
during  the  past  ten  years,  it  is  quite  certain  that  the  next 
decade  will  see  many  new  chains  come  into  existence.  The 
struggle  of  manufacturers  and  jobbers  for  markets  are  forc- 
ing them  into  developing  chain-store  systems,  and  as  long  as 
buying  in  large  quantities  for  cash  secures  lower  prices, 
competition  among  dealers  will  tend  to  draw  groups  of  them 
together,  either  in  the  form  of  organizations  under  single 
managers,  or  in  the  form  of  co-operative  buying  concerns, 
in  order  to  command  the  advantage  of  quantity  prices.  As 
the  number  of  such  combinations  increases,  the  special  ad- 
vantages will  proportionately  diminish,  or,  to  put  it  in  an- 
other way,  as  the  number  of  combinations  seeking  special 
prices  on  the  goods  they  buy  increases,  the  difficulty  in  get- 
ting these  prices  will  also  increase,  hence,  it  will  become  nec- 
essary to  increase  the  size  of  the  aggregations  either  by  ex- 
pansion over  more  territory,  or  by  consolidation  of  existing 
chains  in  order  to  get  better  prices  than  other  concerns. 

That  this  movement  to  consolidate  existing  chains  has 
already  begun  is  evidenced  by  several  significant  events  of 
recent  date.  For  example,  the  F.  W.  Woolworth  Com- 
pany absorbed  the  S.  H.  Kngx  five  and  ten  cent  stores.  The 
United  Cigar  Stores  owners  acquired  a  controlling  interest 
in  the  Riker-Hegeman  Co.,  in  the  latter  part  of  1913.  The 
H.  G.  Gill  stores  have  been  combined  with  the  Maurer  & 
Remley  Company  of  St.  Louis,  and  the  latter  with  the 
Kroger  Grocery  &  Baking  Company,  and  press  rumors  in- 
dicate that  many  other  consolidations  are  being  proposed. 
It  seems  not  at  all  unlikely  that  vast  combinations  will  some  • 
day  occupy  the  field  of  distribution  of  goods,  or  at  least  cer- 
tain parts  of  it,  in  much  the  same  manner  that  many  large 
concerns  now  control  certain  parts  of  production. 


234 


ECONOMICS  OF  RETAILING 


Bibliography 


A  series  of  fourteen  articles  on  chain  stores  appeared  in  Printers 
Ink  beginning  in  the  September  10,  1914,  issue,  and  ending  December  24j 
1914,  written  by  Charles  W.  Hurd  and  M.  Zimmerman,  members  of  the 
Printers'  Ink  staff.    This  series  of  articles  supplies  the  best  publishec 
dissertation  on  chain-store  systems  extant. 

From  One  Store  to  Six  Hundred,  the  Story  of  the  Wool  worth  Stores^ 

Hardware  Dealers'  Magazine,  Sept.,  1912,  and  Dec,  1912. 
Woolworth's  Tower  of  Nickels  and  Dimes.    Hearst's  Magazine,  Oct.^| 

1912. 
History  and  Secrets  of  the  Chain   Store  Grocery  Business.    Grocery 

Magazine,  1911. 

Money  Sticking  Out,  Story  of  B.  H.  Kroger.  '  McGlure's,  Jan.,  1914J 
Several  Articles  on  Chain  Stores  by  R.  A.  Bruce.    Printers'  Ink,  July! 

10,  17,  31,  and  Aug.  7,  1913. 
Getting  Maximum  Sales  Out  of  Chain  Store  System.    Printers'  Ink, 

Aug.  1,  1912. 
An  Account  of  the  Maypole  Dairy  Company  of  England  in  "A  Better 

Day's    Profits."     Published    by    Burroughs    Adding    Machine    Co., 

Detroit. 
Hanan  Chain  Stores.    Printers'  Ink,  March  21,  1912. 
United  Cigar  Stores.    Printers'  Ink,  several  articles  during  November 

and  December,  1911. 


CHAPTER  XIV 

THE  MAIL  ORDER  HOUSE 

The  development  of  the  mail  order  business  is  one  of  the 
most  remarkable  commercial  events  of  the  last  fifty  years. 
While  goods  have  been  ordered  by  mail  ever  since  mails  were 
first  started,  the  retail  establishment  depending  for  business 
entirely  upon  mail  orders,  or  the  department  of  a  retail  store 
set  up  to  handle  nothing  but  business  by  mail,  is  a  very  mod- 
ern thing. 

The  first  of  the  great  mail  order  concerns  was  established 
in  Chicago  by  A.  Montgomery  Ward  in  1872.  The  first 
store  room  was  a  hay  loft  over  a  stable  on  E^st  Kinzie 
Street.  Mr.  Ward,  who  died  December  7,  1913,  had  been 
a  clerk  in  retail  stores  in  Chicago  and  had  also  had  some 
experience  as  a  traveling  salesman  for  a  Chicago  wholesale 
house  before  going  into  the  mail  order  business.  Soon 
after  starting,  he  associated  with  himself  his  brother-in-law, 
George  R.  Thorne.  These  two  men  and  their  families  have 
continued  down  to  the  present  time  to  conduct  the  business 
known  as  Montgomery  Ward  and  Company. 

The  original  aim  of  the  business  was  to  serve  as  a  sup- 
ply house  for  the  farmers'  granges,  local  branches  of  a  secret 
society  known  as  the  Patrons  of  Husbandry,  which  spread 
very  rapidly  in  the  latter  60's  and  early  70's.  The  grange 
movement  had  as  one  of  its  chief  objects,  co-operative  buy- 
ing of  all  classes  of  goods  for  its  members.  While  the  or- 
ganization is  still  strong  in  several  parts  of  the  country,  its 
co-operative  buying  did  not  progress  successfully ;  and  as  that 

235 


236  ECONOMICS  OF  RETAILING 


I 


feature  fell  off,  Montgomery  Ward  and  Co.  moved  into  th 
general  mail  order  field.     The  concern  was  incorporated  in 
1882  and  again  in  1913.     Its  sales  amounted  in  1913  to 
nearly  $40,000,000  and  in  1914  to  $41,042,486. 

Other  concerns  followed  the  methods  of  Montgome 
Ward,  and  at  the  present  time  there  are  hundreds  of  ma: 
order  concerns,  most  of  which,  however,  are  doing  but  a 
small  amount  of  business.  The  business  of  but  one  concern 
exceeds  that  of  Montgomery  Ward  and  Co.,  namely,  that  of 
Sears,  Roebuck  and  Co.  This  concern's  gross  sales 
amounted  to  $95,500,000  in  1913  and  to  $101,121,654  in 
1914. 

Sears,  Roebuck  and  Co.  has  the  most  remarkable  his- 
tory of  all  the  mail  order  houses.  Mr.  Sears,  the  founder, 
was  at  one  time  a  station  agent  in  a  small  town  in  northern 
Minnesota.  A  mail  order  watch  concern  once  sent  a  watch 
to  be  delivered  C.  O.  D.  to  some  customer  in  the  town.  The 
customer  could  not  be  found,  and  Mr.  Sears  notified  the  com- 
pany. They  replied  by  urging  him  to  sell  the  watch  to 
someone  else.  Mr.  Sears  did  so  at  a  profit  of  $2.  This 
profitable  venture  led  him  to  order  other  watches  and  to 
sell  them  at  a  similar  profit.  Later  he  left  the  employ  of 
the  railway  company  and  started  a  mail  order  watch  and 
jewelery  concern  in  Minneapolis,  which  was  moved  to  Chi- 
cago and  after  a  few  years  sold  out  at  a  good  figure.  An- 
other mail  order  house  was  started  in  Minneapolis  under  the 
name  of  Sears  and  Roebuck.  The  new  business  grew,  but  at 
the  end  of  five  years  it  was  thought  best  to  move  this  estab- 
lishment to  Chicago  also.  This  was  done  and  the  concern 
was  incorporated  under  the  laws  of  Illinois  in  1895.  This 
organization  continued  until  1906.  Then  the  concern  under- 
went some  sort  of  a  crisis.  A  reorganization  was  effected 
June  16,  1906,  under  the  leadership  of  Julius  Rosenwald,  a 
former  employee  and  now  president  of  the  concern,  an^'  a 


THE  MAIL  ORDER  HOUSE 


2*7 


number  of  his  friends.  Mr.  Sears  sold  out  his  interest  and 
retired  from  the  business,  although  his  name  was  retained  in 
the  list  of  the  board  of  directors  to  keep  the  confidence  of  the 
public  in  the  new  management.  The  new  corporation  was 
formed  under  New  York  State  laws.  Its  capitalization  at 
that  time  was  placed  at  $10,000,000  in  the  form  of  preferred 
stock,  and  $30,000,000  common  stock.  Since  1906  addi- 
tions have  been  made  to  the  common  stock  and  some  of  the 
preferred  shares  have  been  retired.^ 

Other  giant  concerns  in  the  mail  order  field  are  Timothy 
Eaton  and  Co.  in  Canada,  w^ith  stores  at  Winnipeg  and  To- 
ronto, the  National  Cloak  and  Suit  Company  in  New  York, 
John  M.  Smyth,  Jr.  and  Co.,  Harris  Brothers  Co.,  formerly 
the  Chicago  House  Wrecking  Company,  the  Chicago  Mail 
Order  Company,  Bellas,  Hess  &  Company,  Chas.  Williams' 
Stores,  Bedell's,  Standard  Mail  Order  Company,  and  the 
Larkin  Company.  In  addition  to  these  there  are  a  consider- 
able number  of  credit  mail  order  concerns  which  sell  goods 
on  the  instalment  plan,  and  finally  a  large  number  of  regu- 
lar retail  stores  which  conduct  important  mail  order  depart- 
ments. It  should  be  added  in  passing  that  the  mail  order 
department  in  department  stores  has  not  been  uniformly 
successful.  Several  large  stores  that  formerly  issued  mail 
order  catalogs  have  discontinued,  and  there  are  several  well 
known  merchandising  men,  such  as  W.  R.  Hotchkin,  J.  F. 
Beale,  and  P.  V.  Bunn,  who  have  expressed  lack  of  faith  in 
a  department  store  mail  order  department. 

The  amount  of  mail  order  business  in  this  country  direct 
with  consumers  has  been  variously  estimated  at  from 
$250,000,000  to  $500,000,000  per  year.  If  one  includes  all 
mail  order  business,  the  transactions  of  regular  retail  stores 
through  the  mails  as  well  as  exclusive  mail  order  house  busi- 
ness, the  latter  figure  is  probably  nearer  right.     Estimating 

")n  May  1,  1915  the  capitalization  of  Sears,  Roebuck  &  Co.  was  as  follows: 
P    .        ed   stock   $8,000,000;    common   stock   $60,000,000. 


238  ECONOMICS  OF  RETAILING 

the  total  consumption  of  goods  purchased  through  retail 
stores  to  be  in  the  neighborhood  of  $12,500,000,000,  or  $125 
per  capita  per  year,  it  appears  that  the  mail  order  business 
equals  about  4  per  cent  of  the  total  retail  business.  But  this 
percentage  hardly  represents  what  is  taking  place  by  way  of 
competition  between  mail  order  concerns  and  the  regular  re- 
tail stores ;  for  the  mail  order  business  is  largely,  though  not 
entirely,  transacted  with  customers  in  country  districts  and 
small  towns.  Some  estimates  place  the  mail  order  business 
at  as  high  a  figure  as  20  per  cent  of  the  total  trade  of  this 
part  of  our  population. 

To  indicate  the  extent  of  the  mail  order  business,  the  fol- 
lowing suggestive  statements  drawn  from  catalogs  of  the 
mail  order  houses  will  prove  helpful.  Sears,  Roebuck  and 
Company  claim  to  have  over  6,000,000  regular  re-ordering 
customers.  In  1912  this  concern  is  said  to  have  sold  over 
5,000,000  pairs  of  shoes  at  selling  prices  amounting  to  over 
$7,000,000.  Advertising  cream  separators,  its  spring  cata- 
log of  1913  says  "about  350,000  in  use,"  while  in  the  fall 
of  1913,  the  advertisements  state  that  there  are  "  over  380,- 
000  in  use."  Of  one  type  of  buggy  handled  the  claim  is  made 
"  over  49,000  in  use."  Again  ''  The  entire  output  of  over 
a  hundred  furniture  factories  is  taken."  Montgomery 
Ward  and  Company  claims  to  have  3,000,000  re-ordering 
customers  and  other  concerns  claim  as  high  as  a  million.  Al- 
lowing for  duplications,  there  are  still  probably  at  least 
10,000,000  people  who  order  some  goods  every  year  from 
mail  order  concerns. 

No  other  country  has  developed  the  mail  order  method  of 
distribution  to  consumers  so  extensively  as  the  United  States. 
It  is  not  likely  that  any  other  country  could  possibly  have 
had  a  similar  development,  at  least  in  extent  or  volume  of 
business  and  number  of  customers.  American  life  during 
the  last  fifty  years  has  supplied  a  number  of  conditions  es- 


THE  MAIL  ORDER  HOUSE 


239 


pecially  favorable  for  the  growth  of  this  method  of  distri- 
bution. 

The  typical  American  farmer,  for  example,  lives  an  iso- 
lated life.  His  home,  located  on  his  40  to  160  acre  farm, 
is  distant,  not  only  from  town,  but  also  from  neighbors. 
Farmers  in  other  countries  live  in  villages  and  are  thus 
closely  associated  with  each  other,  as  well  as  with  the  busi- 
ness men  and  store  or  shop-keepers  of  the  village.  The 
American  farmer  has  developed  an  independence  of  spirit 
that  is  at  once  a  strength  and  a  weakness.  Self-reliance 
and  readiness  to  act  on  his  own  initiative  on  the  one  hand  is 
accompanied  by  a  corresponding  tendency  to  feel  little  or  no 
interest  in  the  upbuilding  of  the  community  or  in  anything 
but  his  own  farm  and  family.  Unlike  the  farmer-villager 
common  in  all  of  the  old  countries,  he  feels  no  interest  in  his 
nearest  town,  no  duty  to  support  it  against  all  the  rest  of  the 
world,  and  may  even  suspect  his  townsmen  of  motives  in- 
jurious to  his  rights  of  property.  This  indifference  and 
even  antagonism  between  town  and  country  is  common  in 
America.  Under  these  circumstances  it  is  not  surprising 
that  a  proposal  to  do  business  with  a  distant  store  or  mail 
order  house  meets  with  success,  even  if  the  profit  from  the 
transaction  is  no  greater  than  could  be  had  nearer  home. 
The  farmer  is  as  ready  to  trade  with  one  as  the  other. 

Another  cause  of  the  recent  rapid  progress  of  the  mail 
order  business  is  the  tremendous  increase  in  circulation  of 
popular  periodical  literature  loaded  with  advertising.  Such 
literature  has  had  several  effects.  The  reading  matter  in  the 
form  of  news,  fiction,  special  columns,  and  even  the  illustra- 
tions, have  pointed  out  the  means  to  a  higher  or  costlier 
standard  of  living.  Both  reading  matter  and  advertising 
have  shown  the  way  to  greater  variety  in  consumption,  and 
have  helped  to  create  new  wants  in  the  minds  of  the  people. 
The  advertising  has  indicated  the  way  in  which  those  wants 


ii 


240  ECONOMICS  OF  RETAILING 

could  be  satisfied,  and  the  method  has  often  been  to  orderl 
by  mail  from  a  distant  concern.  The  countryman's  freedom 
from  any  feeling  of  obligation  to  his  home-town  merchants, 
already  referred  to,  and  his  self-reliance  and  initiative  make 
it  easy  for  him  "  to  take  a  chance  "  at  sending  his  money  to. 
a  distant  town. 

The  increased  earning  power  and  consequent  increased 
average  wealth  of  large  classes  of  Americans  in  the  country 
districts  and  small  towns  have  promoted  the  tendency  to 
emulate  classes  of  society  thought  to  be  "  higher."  Such 
emulation  has  always  meant  the  expenditure  of  more  money 
for  the  things  used  conspicuously,  such  as  clothing-,  car- 
riages, automobiles,  horses,  furniture,  house  furnishings, 
and  so  on.  Fashion  now  finds  expression  among  classes  of 
people  who  have  heretofore  never  felt  its  appeal.  The  de- 
sire of  the  American  citizen  "  to  be  as  good  as  the  best  '* 
too  often  results  in  nothing  but  consumption  of  such  goods 
as  it  is  believed  "  the  best "  use.  Fashion,  emulation,  and 
desire  for  variety,  therefore,  cause  new  classes  coming  into 
economic  independence  to  seek  outlets  for  their  spending 
power.  For  these,  in  their  earlier  stages  at  least,  the  mail 
'5      order  house  is  the  means  to  the  desired  end.     The  goods 

J  S  thus  obtained  are  distinguished  by  being  "  different  "  from 
anything  in  the  home  village,  and  by  having  come  from  that 
region  of  mystic  charm,  the  city.  In  accordance  with  their 
advertised  descriptions,  such  goods  are  "  the  latest  and  most 

i  K    approved  by  the  best  classes." 

^^  ^>^  The  retail  merchants  of  the  smaller  towns  have  in  many 
cases  been  unable  to  meet  successfully  the  growth  of  the  pro- 
gressing demands  of  their  customers.  Often  the  customers 
of  a  store  may  have  transferred  a  large  part  of  their  trade 
to  mail  order  concerns  long  before  the  merchant  learns  any- 
thing about  it.  The  work  of  retailing  in  a  small  commu- 
nity and  a  small  store  is  largely  a  work  of  countless  details, 


THE  MAIL  ORDER  HOUSE 


241 


and  it  is  easy  to  overlook  the  general  tendencies  of  demand 
and  to  get  into  a  habit  or  custom  of  doing  routine  things 
in  the  same  old  way.  Customers,  in  some  cases,  actually 
grow  away  from  the  store  that  stands  still  and  transacts  busi- 
ness in  the  same  way  with  the  same  kinds  and  qualities  of 
goods,  trying  to  get  the  same  profit  margins,  year  after  year. 
It  is  significant  that  where  the  merchants  are  most  active 
and  progressive,  the  mail  order  business  is  usually  unimpor- 
tant. 

Advertising  has  made  great  strides  as  an  art  useful  in 
promoting  sales  during  the  last  score  of  years,  but  in  no 
business  has  it  reached  the  state  of  perfection  found  in  the 
larger  mail  order  houses.  This  advertising  has  in  many 
cases  been  more  powerful  than  the  personal  salesmanship 
and  actual  display  of  goods  in  local  retail  stores. 

Finally,  the  mail  order  houses  have  used  as  their  prin- 
cipal argument,  a  price  lower  than  that  asked  in  regular  re- 
tail stores.  The  mail  order  house  catalog  of  ten  years  ago 
was  a  mass  of  price  comparisons.  An  attempt  was  made  to 
show  for  almost  every  article  that  it  would  cost  so  much 
more  at  the  regular  stores  than  at  the  mail  order  house. 
Price  comparisons  are  not  now  so  frequently  made  directly. 
The  suggestion  is,  however,  made  in  even  more  effective 
ways,  though  more  indirectly,  that  the  mail  order  method 
of  purchasing  is  one  of  great  economies. 

The  independence  and  lack  of  community  spirit  of  the 
American  countryman  due  largely  to  his  isolated  manner  of 
living,  the  general  circulation  of  periodical  literature  among 
all  classes  of  people,  the  increased  earning  power  of  many 
classes,  the  rising  standards. of  living,  the  backwardness  of 
many  small-town  merchants,  the  power  of  mail  order  adver- 
tising to  create  demands  for  mail  order  house  goods,  and  the 
cheaper  price  argument,  are,  it  seems  to  the  writer,  the  chief 
causes  of  the  mail  order  business  development.    . 


242  ECONOMICS  OF  RETAILING 

As  already  suggested,  the  mail  order  house  sells  its  goods 
through  advertising.  The  mediums  employed  include  let- 
ters, circulars,  newspaper  or  magazine  advertising,  price  lists, 
and  catalogs.  The  catalog  and  the  advertisement  in  the 
popular  periodicals  are  the  ones  most  commonly  and  most 
successfully  used.  Every  effort  is  made  to  make  these  as 
effective  as  possible.  The  v^ork  of  the  advertising  man  in  a 
mail  order  house  is  second  in  importance  to  no  other.  In 
general,  the  advertisement  of  an  article  either  in  a  paper  or 
in  a  catalog  must  catch  the  reader's  attention  and  interest 
at  the  first  glance,  and  the  description  must  be  such  as  to 
make  the  reader  see,  feel,  and  appreciate  the  qualities,  as  if 
the  goods  were  already  within  reach.  The  reader  is  made  to 
feel  that  there  is  nothing  to  do  but  to  fill  out  the  order  blank 
and  send  the  money  to  the  mail  order  house  in  order  to  con- 
summate the  enjoyment  or  satisfaction  anticipated.  No 
wonder  the  mail  order  house  catalogs  are  read  by  thousands 
of  families  more  than  any  other  book.  They  are  interest- 
ingly written  in  language  carefully  calculated  to  attract  the 
attention  and  stimulate  the  desires  of  such  families.  They 
bear  every  mark  of  the  best  popular  literature  in  that  their 
use  of  words  is  picturesque,  the  ideas  are  clearly  expressed, 
the  terms  used  are  all  within  the  average  person's  grasp,  and, 
above  all,  they  tell  the  intimate  things  that  people  want  to 
know  —  the  qualities  of  goods,  what  other  people  are  using, 
the  chances  to  economize,  what  is  necessary  in  order  to  out- 
shine other  people,  and  so  on.  These  are  material  things, 
and  the  material  things  of  life  influence  all  classes.  The 
mail  order  catalog  is  to  many  country  or  small  town  con- 
sumers what  the  department  store  and  the  brilliantly  lighted 
shopping  district  are  to  the  city  dweller. 

In  the  larger  mail  order  houses  the  handling  of  the  mer- 
chandise and  the  filling  of  orders  is  reduced  to  great  cffi- 


THE  MAIL  ORDER  HOUSE 


243 


ciency.  We  may  take,  as  an  illustration,  the  system  fol- 
lowed in  one  of  the  largest  of  these  concerns. 

Practically  all  of  the  orders  come  to  the  house  through 
the  mails.  The  mails  come  to  the  concern  in  truck  loads 
four  times  a  day.  In  the  largest  concern  of  the  kind, 
90,000  pieces  of  mail  per  day  is  an  average  amount.  The 
first  step  is  the  separation  of  the  postal  cards  and  other  mat- 
ter from  the  sealed  letters.  The  next  is  the  opening  of  the 
sealed  letters  by  power-operated,  letter-opening  machines 
which  are  able  to  handle  10,000  to  12,000  letters  per  hour  per 
machine.  The  contents  of  the  letters  are  next  examined  and 
another  classification  is  made.  All  letters  containing  no  or- 
ders for  goods,  but  seeking  or  giving  information  of  any 
kind  are  turned  over  to  the  correspondence  departments. 
Letters  containing  orders  for  goods  on  time,  or  for  C.  O.  D. 
shipment  are  sent  to  the  credit  department,  and  letters  con- 
taining orders  for  goods  accompanied  by  payment  are  sent 
to  the  auditing  department.  The  method  of  handling  credit 
orders  will  be  described  later. 

The  orders  going  to  the  auditing  department  are  care- 
fully checked  as  to  descriptions  and  prices,  and  the  total  of 
the  order  checked  with  the  amount  of  money  sent.  Record 
is  made  of  the  amount  of  money  received,  an  invoice  num- 
ber is  assigned  to  the  order,  the  money  is  turned  over  for 
entry  and  deposit,  and  the  order  is  sent  on  to  the  entry  de- 
partment. Here  the  order  tickets  are  made  out  that  are  to 
go  to  the  merchandise  departments.  One  order  ticket  is 
made  out  for  each  merchandise  department  represented  in 
the  customer's  order.  A  complete  record  is  made  of  the 
order  for  the  mail-order  house  files  and  indexed  so  as  to 
make  it  easy  to  locate  at  any  time.  Next,  the  order  tickets 
are  sent  to  the  routing  department  where  specialists  on  rout- 
ing and  transportation  fill  in  instructions  as  to  the  methods 


244  ECONOMICS  OF  RETAILING 

of  shipping  and  packing,  and  attach  the  address  labels  for 
use  in  the  packing  department.  This  completes  the  office 
work  in  connection  with  an  order. 

The  order  tickets,  properly  filled  out  with  instructions  as 
to  packing,  shipping,  and  so  on  together  with  the  address 
labels  are  next  sent  direct  to  the  proper  merchandise  de- 
partments. The  manager  of  the  merchandise  department 
receives  the  order  ticket  addressed  to  him,  has  it  filled  by  one 
of  his  assistants,  and  then  sends  the  goods  and  the  order 
tickets  to  the  assembling  and  packing  room.  If  the  original 
order  called  for  goods  from,  say,  four  of  the  concern's  mer- 
chandise departments,  each  would  receive  its  order  ticket, 
and  the  goods  would  be  received  from  each  department,  as- 
sembled into  one  parcel  in  the  packing  department  and  then 
checked  to  see  that  nothing  had  been  omitted.  After  pack- 
ing, the  address  labels  are  affixed  and  the  parcel  is  shipped  to 
its  destination.  All  together,  an  average  mixed  order  for 
goods  passes  through  from  fifty-five  to  sixty  hands  from  the 
time  it  is  received  until  the  goods  are  shipped. 

Recently  an  innovation  has  been  adopted  in  the  delivery 
of  goods  in  cities  of  from  3,000  population  and  up.  In  such 
places  the  cost  of  dray  age  for  freight  from  the  station  to 
the  homes  of  customers  has  often  been  so  much  as  to  deter 
ordering  goods.  Under  the  new  plan  now  followed  by  the 
largest  mail  order  houses,  sometimes  in  co-operation  with 
each  other,  arrangements  are  made  with  some  local  drayman 
to  receive  all  freight  from  the  mail  order  houses  in  his  name 
as  if  he  were  the  customer  and  thereby  receive  the  lowest 
freight  rates  accorded  for  quantities.  The  drayman  is  then 
required  to  make  deliveries  to  the  homes  of  the  customers 
and  to  charge  the  latter  a  pro  rata  share  of  the  cheaper 
freight  rate,  plus  a  delivery  charge  based  on  a  rate  fixed  by 
contract  between  the  drayman  and  the  company,  always 
somewhat  less  than  the  regular  dray  charge  would  be.     In 


THE  MAIL  ORDER  HOUSE  245 

this  way  the  transportation  charges,  both  freight  and  dray- 
age,  are  considerably  reduced,  especially  for  small  parcels 
that  would  not  ordinarily  be  entitled  to  the  lowest  rates. 

A  number  of  mail  order  houses  have  always  done  a 
credit  business,  but  some  of  the  largest  have  from  the  first 
done  a  cash  business  exclusively.  Recently  some  of  these 
cash  houses  have  established  credit  departments  for  certain 
classes  of  customers.  It  has  been  found  that  certain  kinds 
of  goods,  such  as  pianos,  cream  separators,  and  other  expen- 
sive goods,  do  not  sell  readily  on  the  cash  in  advance  basis. 
The  amount  of  cash  required  is  more  than  many  users  of 
such  goods  can  pay  down  at  one  time.  Where  credit  is 
granted,  however,  every  precaution  is  taken  to  secure  pay- 
ments when  due.  The  credit  manager  of  such  a  concern  is 
one  upon  whom  great  responsibility  rests  for  he  must  find 
out  all  about  his  credit  customer's  ability  to  pay  by  means 
that  will  not  antagonize  him.  Seemingly,  from  the  point  of 
view  of  the  customer,  credit  is  obtained  very  easily.  Really 
the  whole  financial  history  of  the  customer  is  pretty  well 
known  to  the  credit  manager  before  he  affixes  his  O.  K.  to 
the  order.  This  done,  however,  the  order  passes  back  into 
the  office  channels  already  described,  just  the  same  as  an  or- 
der accompanied  by  cash.  When  payments  fall  due,  the  mail 
order  credit  department  system  takes  care  that  the  customer 
receives  due  notice,  and  if  for  any  reason  he  does  not  re- 
spond as  he  should  the  collection  machinery  of  the  concern 
is  set  to  work  to  get  the  amount  due.  As  progressive  parts 
of  this  system,  he  may  get,  at  first,  a  mere  statement  of  the 
amount  due;  second,  a  letter  calling  his  attention  to  the 
amount  due;  third,  a  letter  urging  payment  or  an  immediate 
reply  giving  reasons  for  failure;  fourth,  a  threario  begin 
legal  action  if  pay  is  not  forthcoming  at  once;  and  fifth,  if 
the  company  has  received  no  satisfactory  response,  the  claim 
is  placed  in  the  hands  of  the  local  attorney  with  instructions 


246  ECONOMICS  OF  RETAILING 

to  secure  the  money  without  delay  in  any  possible  way.  The 
losses  due  to  bad  debts  in  the  best  managed  mail-order  con- 
cerns are  usually  a  very  small  percentage  of  the  total  sales. 
By  exercising  care  in  the  granting  of  credit,  and  by  pushing 
the  debtor  for  payment  promptly  when  due,  the  collection 
difficulties  are  reduced  to  a  minimum.  One  concern  that 
sold  by  mail  about  4,000  pianos  in  two  years,  had  to  use 
legal  force  in  making  collections  in  only  two  cases. 

Ranking  with  the  work  of  the  advertising  department  in 
importance  to  the  firm,  stands  the  buying  of  the  merchandise. 
In  order  to  do  business  with  the  public  it  is  necessary  not 
only  to  have  able  men  prepare  the  catalogs  and  other  ma- 
terial describing  the  goods  but  also  to  have  buyers  who  are 
able  to  get  bargains  worth  talking  about. 

Every  merchandise  department  has  its  chief  who  is  the 
buyer.-  His  qualifications  for  his  work  are  very  important. 
He  must  know  thoroughly  the  classes  of  goods  his  depart- 
ment is  to  carry.  He  must  be  familiar  with  their  quaHties, 
comparative  values,  and  styles,  and  know  where  such  goods 
can  be  obtained,  how  they  are  made,  the  materials  of  their 
construction,  costs  of  making,  market  tendencies,  and  so  on. 
He  must  be  shrewd  in  bargaining,  cool  and  quick  in  judg- 
ment, and  sure  in  his  reasonings.  His  work  commands  a 
salary  of  from  $2,500  up  to  $25,000  and  even  more  per  year. 

The  mail  order  house  of  today  that  succeeds  best  is 
the  one  that  has  either 'plenty  of  cash,  or  very  good  credit. 
One  of  the  fundamental  conditions  of  success  in  the  mail 
order  business  is  ready  money  to  buy  with  and  plenty  of  it. 
The  buyer  in  a  large  concern  has  but  few  restrictions  placed 
upon  him  as  to  what,  when,  or  how  much  he  shall  buy,  or 
how  much  he  shall  pay.  He  is  assumed  to  be  a  specialist 
in  his  line  and  his  judgment  is  not  to  be  questioned.  The 
only  injunction  that  hangs  constantly  over  his  head  is  "  make 
good."     Whatever  he  does  he  must  show  a  good  net  profit 


THE  MAIL  ORDER  HOUSE 


247 


in  his  department  at  the  end  of  the  season.  If  he  fails  to  do 
so,  and  can  give  no  good  reason  for  the  failure,  he  loses  his 
job.  Such  changes  in  the  personnel  of  mail  order  buyers 
is  not  at  all  infrequent,  and  the  executives  of  large  mail  or- 
der concerns  are  constantly  scouring  the  country  with  sharp 
eyes  to  locate  the  ablest  buyers.  Whenever  one  is  located, 
he  is  secured  at  once  if  possible. 

With  these  conditions  in  mind,  the  buyer  sets  out  to  buy 
goods  at  the  lowest  possible  prices  and  to  sell  them  at  the 
highest  possible  figures.  The  standards  of  the  concern  as 
to  quality  of  goods  must  be  maintained  as  closely  as  possible. 
The  prices  at  which  the  goods  are  to  be  sold  can  never  be 
more  than  those  obtained  by  most  retail  stores,  especially  in 
well-known  standard  goods.  How  much  below  the  regular" 
prices  the  mail  order  house  must  mark  its  goods  is  a  problem. 
Such  prices  must  be  low  enough  to  attract  trade  but  not  any 
lower  than  is  necessary  to  this  end.  The  upper  limits  being 
fixed  thus  by  general  retail  market  conditions,  the  greater 
part  of  the  buyer's  work  consists  in  trying  to  buy  his  goods 
at  lower  and  lower  prices,  or  at  least  to  get  them  at  lower 
prices  than  anyone  else. 

The  mail  order  house  with  plenty  of  cash  at  its  command 
and  an  outlet  for  large  volumes  of  goods,  is  in  a  position  to 
get  inside  prices  —  if  any  one  can  get  them.  The  inside 
price  itey  take  either  of  two  forms,  an  unusually  large  dis- 
count for  cash,  or  an  unusually  low  quantity  price.  Some- 
times when  immediate  cash  is  not  an  object  to  a  supplier, 
the  buyer  may  succeed  in  getting  his  bills  dated  forward  for 
a  considerable  length  of  time,  thus  getting  the  use  of  the 
funds  for  the  house  for  a  longer  time  before  paying  for  the 
supplies. 

The  buyer  of  a  mail  order  house  with  plenty  of  cash  at 
his  disposal  watches  for  bargains  the  country  over.  A 
manufacturer  who  has  overstocked  himself  with  his  product 


248  ECONOMICS  OF  RETAILING 

and  does  not  see  any  immediate  means  of  liquidating,  or  a 
manufacturer  in  need  of  ready  cash  whose  credit  is  none  too 
good  at  the  banks,  or  a  manufacturer  in  a  line  that  has  only 
a  seasonal  demand  followed  by  periods  of  dullness,  or  a 
manufacturer  who  has  had  trouble  in  marketing  his  goods  — 
these  classes  of  producers  are  likely  to  be  visited  by  mail  or- 
der buyers.  Large  orders  and  cash  in  hand  will  be  offered 
if  the  prices  are  made  low;  and  the  result  is  that  many  such 
transactions  are  made  upon  very  favorable  terms.  Rarely 
do  suppliers  succeed  in  getting  fancy  profits  when  dealing 
with  such  buyers. 

One  of  the  most  potent  factors  in  modern  mail  order 
merchandising  is  the  guarantee.  One  concern  prints  in 
large  type  on  the  outside  of  its  cover,  "  We  guarantee  ab- 
solute satisfaction.  Promptly  return  to  us,  at  our  expense, 
any  unsatisfactory  purchase.  We  will  then  either  exchange 
it  for  what  you  want,  or  return  the  full  amount  you  have 
paid,  together  with  transportation  charges."  This  is  an  un- 
qualified guarantee.  It  has  no  strings  attached  to  it.  Some 
people  undoubtedly  take  advantage  of  this  guarantee  and 
make  unreasonable  demands,  but  the  amount  that  is  lost  in 
this  way  is  more  than  recovered  by  the  gains  in  trade  with 
the  timid  who  might  not  purchase  at  all,  if  it  were  not  for 
this  clear-cut  statement. 

A  guarantee  of  this  kind  issued  by  a  large  house  has  a 
peculiar  psychological  effect.  It  not  only  promotes  confi- 
dence in  the  statements  made  in  the  catalog,  but  it  also  pro- 
motes confidence  in  the  goods  themselves,  even  after  they 
have  come  to  the  customer.  The  way  this  principle  works 
can  best  be  seen  in  the  case  of  some  concerns  that  attach 
guarantee  tags  to  all  goods  sent  out.  This  tag  attached  to 
an  article  when  it  finds  its  way  into  the  customer's  hands  is 
equivalent  to  an  assertion  made  in  a  positive  way  that  the 
article  is  good.     This  assertion  helps  to  overpower  any 


THE  MAIL  ORDER  HOUSE 


249 


negation  or  criticism  that  might  otherwise  tend  to  form  in 
the  customer's  mind.  The  guarantee,  therefore,  actually 
tends  to  prevent  returns  and  exchanges  rather  than  to  in- 
crease them. 

Truthfulness  of  advertising  is  another  important  factor 
in  the  long  run.  Because  of  slight  misrepresentations  in  the 
catalogs  or  other  advertising  matter  many  concerns  never 
receive  a  second  order  from  customers.  Readiness  of  the 
firm  to  back  up  every  statement  made  is  the  first  principle 
in  successful  merchandising  not  only  in  the  mail  order  busi- 
ness but  in  every  other  retail  business  as  well.  It  seems 
that  in  this  regard  the  standards  of  mail  order  houses  have 
risen  considerably  during  the  last  few  years.  Even  the  or- 
dinary expressions  of  selling  talk  have  been  toned  down 
considerably.  It  is  probable  that  any  misrepresentations 
which  occur  in  the  advertising  matter  of  most  of  the  large 
houses,  at  least,  are  due  to  error  rather  than  policy.  It 
would  be  strange  if  some  errors  did  not  creep  into  the  de- 
scriptions of  merchandise,  when  these  run  up  into  the  tens 
of  thousands  in  a  single  catalog. 

It  is  of  interest  to  note  the  character  of  the  work  required 
and  done  in  the  correspondence  departments  of  mail  order 
houses.  Here  again  are  found  high-salaried  people.  In 
writing  to  customers  or  others  great  care  and  judgment  must 
be  exercised.  Questions  must  be  answered  precisely,  clearly, 
and  tactfully.  All  classes  of  people  must  be  corresponded 
with.  What  is  put  down  on  paper  must  be  both  readable 
and  interesting  from  the  standpoint  of  the  person  who  re- 
ceives the  letter,  whether  that  person  be  a  day  laborer  in  a 
factory,  a  farmer,  a  ranchman,  a  housewife,  or  a  school 
boy.  The  reader  of  the  letter  must  be  put  at  ease.  Confi- 
dence must  be  restored  in  cases  of  complaint,  or  built  up  in 
case  of  inquiry.  "  Write  letters,  or  orders  to  us,  in  any  way, 
on  any  piece  of  paper,  and  in  any  language.     We  can  read 


250 


ECONOMICS  OF  RETAILING 


and  correspond  with  you  in  your  own  tongue.  Don't  be 
afraid  you  will  make  a  mistake.  We  will  readily  under- 
stand what  you  want."  Such  is  the  statement  in  one  cata- 
log. To  adapt  the  work  of  the  correspondence  department 
to  all  of  such  needs  requires  both  high  grade  intelligence 
and  art. 

In  a  large,  modern  mail  order  house  one  finds  a  great 
variety  of  devices  to  make  the  handling  of  orders  and  goods 
efficient.  Letters  are  opened  by  machine,  orders  and  com- 
munications are  sent  to  departments  in  pneumatic  tubes, 
parcels  and  loose  goods  are  conveyed  from  upper  to  lower 
floors  in  gravity  conveyors,  and  from  one  part  of  the  build- 
ing to  others  by  endless  belt  conveyors.  Orders  are  filled  by 
people  who  travel  almost  on  the  run  all  day  long.  Experi- 
ments have  been  made  in  the  use  of  roller  skates  in  the  order 
filling  and  stock  room  departments.  Packing  has  been  re- 
duced almost  to  an  exact  science.  Wherever  a  machine  can 
do  the  work,  one  is  used.  Human  labor  is  classified  and 
departmentized.  New  employees  are  taught  how  to  do  their 
work  most  effectively.  Standards  of  performance  are  set 
and  employees  must  come  up  to  these  standards.  Responsi- 
ble positions  pay  high  salaries,  but  the  system  is  so  devised 
that  the  number  of  such  positions  is  few  compared  to  the 
total.  The  majority  of  employees  need  only  to  be  active, 
alert,  and  accurate  in  their  movements.  Everything  is  taken 
care  of  by  definite  instruction.  For  this  reason  a  very  large 
number  of  such  routine  positions  are  filled  by  young  people, 
boys  and  girls  below  twenty  years  of  age,  working  at  low 
wages. 

Looking  at  the  business  from  the  social  standpoint,  one 
might  wonder  what  becomes  of  all  of  these  young  people  as 
they  grow  older  and  must  have  higher  paying  situations  in 
order  to  meet  the  higher  costs  of  adult  life.  Certainly,  only 
a  small  proportion  can  ever  hope  to  occupy  the  better  paying 


THE  MAIL  ORDER  HOUSE 


251 


positions  in  their  respective  firms.  One  might  also  question 
what  effect  their  experience  in  such  highly  specialized  and 
subdivided  routine  work  has  on  their  chances  for  getting 
more  lucrative  employment  elsewhere.  Whatever  the  an- 
swers to  these  questions  may  be,  it  must  be  asserted  that  the 
mail  order  business  represents  one  of  the  highest  forms  of 
corporate  efficiency.  Every  item  is  turned  to  account  in  the 
production  of  profit. 

This  brings  us  to  the  final  point.  What  are  the  costs  of 
doing  a  mail  order  business?  The  following  is  a  schedule 
of  the  percentages  of  each  of  the  main  expense  items  based 
on  sales  for  a  specialty  mail  order  house  in  1913 : 

Percentage 
Expense  Item  of  Sales 

Rent  1.8 

Salaries  ^ 4.6 

Advertising    3.2 

Heat  and  light  0.9 

Delivery  * 4.3 

Supplies    2.3 

Insurance  and  taxes 0.7 

General  expenses 2.4 

Depreciation  and  shrinkage 0.6 

Bad  debts 1.6 

Total    22.4 

Two  items  in  the  list  are  out  of  the  ordinary,  namely, 
advertising  and  delivery.  Advertising  averages  from  6  to  10 
per  cent  of  sales  in  most  concerns,  and  delivery  is  an  item 
that  appears  only  for  concerns  that  prepay  transportation 
charges  to  consumers.  The  illustration  is  taken  from  a  com- 
pany that  does  very  little  general  advertising.  Its  business 
is  obtained  by  correspondence,  using  select  mailing  lists,  and 
delivery  charges  are  prepaid. 

In  testimony  given  by  Wm.  C.  Thorne,  Vice  President 
of  Montgomery  Ward  and  Company  before  the  Parcels 
Posts  sub-committee  of  the  Senate  Committee  on  Post  Offices 
and  Post  Roads,  January  3,  1912,  he  stated  that  "  the  cost 


252  ECONOMICS  OF  RETAILING 

of  doing  business  in  a  catalog  house  runs  from  16  to  25  per 
cent  of  sales."  Among  figures  gathered  by  the  writer 
directly  from  mail  order  houses,  the  range  is  from  16  to  26 
per  cent  of  sales.  One  was  given  as  16  per  cent  of  sales, 
another  as  18%  per  cent,  another  at  20  per  cent;  one  at 
22  per  cent;  two  at  24  per  cent;  two  at  25  per  cent,  and  one 
at  26  per  cent.  The  average  appears  to  be  about  22  per  cent. 
Considering  the  volume  of  business  transacted,  20  to  22 
per  cent  of  sales  would  probably  be  fairly  representative  of 
the  average  cost  at  which  the  mail  order  business  of  this 
country  is  transacted  by  exclusive  mail  order  houses.  Mail 
order  departments  in  regular  retail  stores  seem  to  run  some- 
what higher  in  most  cases.  These  figures  must  be  consid- 
ered merely  as  indications  or  estimates  at  best.  While  they 
represent  the  costs  found  in  some  of  the  largest  concerns 
in  the  country,  the  number  of  firms  included  is  too  small 
to  enable  one  to  form  an  accurate  idea. 

In  conclusion,  mail  order  houses  claim,  and  undoubtedly 
do  have,  certain  advantages  in  many  cases  over  the  small 
local  stores  that  are  most  affected  by  the  mail  order  com- 
petition. 

First.  The  art  of  advertising  is  carried  very  much  far- 
ther by  the  successful  mail  order  concern  than  by  the  small 
town  store.  In  fact,  even  where  prices  for  the  same  goods 
are  the  same,  the  advertising  is  sometimes  of  such  character 
as  to  pull  trade  away  from  the  local  dealer  in  spite  of  all  of 
the  advantages  the  latter  has  in  the  way  of  personal  sales- 
manship and  of  allowing  the  customer  to  examine  the  goods 
before  buying.  The  vivid  descriptions  of  goods  and  the 
suggestions  of  enjoyment  or  satisfaction  stirred  up  in  antici- 
pation of  ownership,  not  always  literally  truthful  with  all 
advertisers,  are  factors  in  the  modern  mail  order  catalog 
that  must  be  reckoned  with. 

Second.     The  large  mail  order  house  is  enabled  to  offer 


THE  MAIL  ORDER  HOUSE 


253 


through  its  catalog  a  very  wide  variety  of  goods,  a  great 
factor  of  success  in  competing  with  small  town  merchants. 

Third.  Certain  classes  of  people,  in  this  country  at 
least,  are  ready  customers  of  mail  order  houses  whenever 
they  are  in  the  market  for  goods.  People  who  feel  no  inter- 
est in  the  up-building  of  the  trade  of  a  community,  those 
who  have  actually,  or  through  misunderstanding,  felt  them- 
selves mistreated  by  their  home  merchants  in  any  way,  or 
those  who  desire  the  distinctive  thing,  the  merchandise  from 
the  distant  place  of  different  appearance  or  qualities,  but 
who  cannot  afford  to  go  in  person  to  the  distant  town  to 
buy ;  and  those  who  are  trying  to  make  their  funds  go  as  far 
as  possible  and  to  whom  the  cut  prices  often  advertised 
mean  a  great  deal  —  these  classes  form,  perhaps,  in  the 
main,  the  bulk  of  mail  order  house  patrons. 

Fourth.  The  large  mail  order  house  through  its  finan- 
cial power  and  ability  to  market  immense  quantities  of  goods 
is  able,  without  doubt,  to  buy  much  of  its  goods  at  inside 
prices,  and  such  prices  are  often  so  low  that  the  mail  order 
house  may  undersell  its  competitors  and  still  make  a  hand- 
some profit.  In  other  words,  the  mail  order  house  is  fre- 
quently favored  by  manufacturers  with  an  unusual  quantity 
price. 

The  economic  disadvantages  of  the  mail  order  method  of 
distribution  may  be  summarized  as  follows :  A  constant 
and  high  advertising  expense  is  necessary  to  keep  trade  com- 
ing in;  a  large  number  of  customers  never  send  in  more  than 
one  order;  and  new  fields  of  customers  must  be  cultivated 
constantly.  The  transportation  item  from  the  mail  order 
houses  to  customers  is  frequently  overlooked  in  discussions 
of  this  kind,  but  constitutes  an  expense  that  is  dispropor- 
tionately large.  When  one  adds  up  all  expenses  properly 
chargeable  and  incident  to  dealing  with  a  mail  order  con- 
cern it  is  open  to  question  whether  the  mail  order  method 


254  ECONOMICS  OF  RETAILING 

of  distribution  is  more  economical  than  the  older  jobber- 
retailer-to-consumer  method. 

That  this  fact  is  one  that  bothers  the  mail  order  house 
managers  is  made  evident  by  the  attempts  to  reduce  the 
transportation  expense  on  the  packages  and  parcels  as  they 
are  sent  to  the  customers  by  establishing  branch  houses  or 
redistributing  points.  Montgomery  Ward  and  Company 
has  such  branch  warehouses  at  New  York,  Kansas  City, 
Portland,  Oregon,  and  Fort  Worth,  Texas.  Sears,  Roebuck 
and  Company  likewise  has  three  or  four  branch  warehouses, 
while  certain  classes  of  goods  such  as  stoves  are  distributed 
directly  to  consumers  from  a  dozen  or  more  points.  The 
National  Cloak  and  Suit  Company  combines  all  the  ship- 
ments for  a  week  or  shorter  period  to  some  central  point  in 
a  section  and  ships  them  by  freight  to  an  agent  located  in 
this  place.  The  agent  opens  up  the  freight  boxes  and  reships 
the  contents  by  parcels  post,  the  packages  for  individual 
customers  being  already  wrapped,  stamped  and  addressed 
to  their  proper  destinations.  By  these  means  soi;ne  savings 
are  effected  in  mail  order  distribution. 

/ 


CHAPTER  XV 

PRICE-MAINTENANCE 

Price-maintenance  is  a  term  used  to  designate  a  business 
policy  applied  in  the  marketing  of  products  through  middle- 
men. It  consists  essentially  of  the  limitation  or  restriction 
placed  upon  middlemen  or  dealers  not  to  resell  at  more  or 
less  than  a  certain  price  named  by  the  manufacturer  or 
producer. 

Business  men  take  views  upon  the  subject  in  accord 
with  their  business  interests  and  cannot  be  reconciled.  The 
United  States  Supreme  Court  has  decided,  in  decisions  to 
be  referred  to  later  on  in  this  chapter,  that  price-maintenance 
under  ordinary  and  customary  forms  is  illegal.  An  attempt 
has  been  made,  and  likewise  opposed,  to  secure  national 
legislation  permitting  the  practice  of  the  policy.  In  conse- 
quence of  these  things  and  because  of  the  gravity  and  far- 
reaching  effects  of  the  problem,  it  has  become  a  matter  of 
vital  public  interest.  A  solution  is  now  demanded  of  the 
court  of  public  opinion. 

The  price-maintenance  policy  originated  with  the  present 
system  of  distributing  goods  through  wholesalers  and  re- 
tailers. Large  scale,  specialized  production,  dependent  upon 
wide  distribution  through  the  regular  channels  of  trade,  and 
cut- throat  competition  are  the  conditions  out  of  which  grew 
the  demand  for  this  policy. 

From  the  earliest  developments  of  the  factory  system, 
there  existed  the  sharpest  competition  both  among  producers 
and  distributors.     At  first,  the  producers  fought  their  com- 

255 


256  ECONOMICS  OF  RETAILING 

petitive  battles  almost  entirely  by  attempts  to  cheapen  the 
quality  of  the  goods  and  by  trying  at  the  same  time  to  keep 
up  appearances.  It  was  the  age  of  fleeting  colors,  shoddy, 
glue,  and  paste.  Some  of  these  manufacturers,  as  well  as 
their  distributors,  never  expected  to  sell  a  consumer  the  same 
make  of  article  more  than  once.  American-made  goods 
were  the  laughing  stock  of  the  world.  ''  Cheap  factory- 
made  stuff  "  was  a  commonly  used  phrase. 

This  state  of  competition  led  to  evils  that  had  to  be  cor- 
rected by  state  and  national  legislation.  As  a  result  there 
grew  up  whole  codes  of  factory  laws,  child-labor  laws,  pure- 
food  laws,  and  so  on;  and,  as  an  indication  that  the  same 
forces  are  still  operative,  it  may  be  noted  that  there  is  an 
emphatic  demand  from  many  parts  of  the  country  for  pure 
textile  laws,  pure  shoe  laws,  and  truthful  advertising  laws. 

Out  of  the  competition  mentioned  above,  there  grew 
two  movements.  One  was  the  trus^t,  built  on  the  financial 
wreckage  of  unsuccessful  plants  and  seeking  a  monopoly 
of  the  industry  by  controlling  either  the  sources  of  supply, 
or  the  markets  leading  to  the  consumer.  Th^  other  was_ 
a  movement  to  get  the  trade  of  the  public  by  giving  satis- 
factory goods  at  satisfactory  prices.  It  was  thought  by 
some  producers  that  in  the  long  run,  in  preference  to  making 
cheap  goods  for  competitive  selling,  it  would  be  more  profita- 
ble to  make  goods  of  constant  standard  qualities,  and  depend 
upon  the  judgment  of  the  public  for  returns. 

Some  of  these  producers  who  believed  that  they  could 
build  successful  businesses  on  the  basis  of  making  goods  of 
standard  qualities  began  to  carry  out  their  plans.  After 
they  had  developed  their  product  to  the  standard  of  excel- 
lence decided  upon,  they  began  to  tell  the  public  about  it 
by  advertising  and  otherwise.  The  goods  were  distributed 
through  the  most  economical  means  available  at  the  time, 
that  is,  through  the  regular  channels  of  trade.     The  public 


PRICE-MAINTENANCE  257 

saw  the  advertisements,  tried  the  new  standard  goods,  paid 
the  standard  prices  for  them,  and  were  satisfied.  They 
came  again  and  again  for  the  same  goods.  They  were 
evidently  permanently  satisfied. 

Let  us  remember  that  the  dealers  were  still,  and  are  yet, 
largely  without  well  recognized  standards  of  merchandising 
competition.  Each  man  did  whatever  was  within  his  power 
to  keep  his  own  trade  and  attract  the  trade  of  his  rivals, 
whether  the  means  were  fair  or  foul,  so  long  as  the  law 
permitted  and  the  public  remained  indifferent.  Price-cutting 
had  been  a  device  of  traders  since  the  beginnings  of  com- 
merce. It  was  not  long  before  some  enterprising  dealer 
thought  of  these  new  standardized  goods,  now  becoming 
well-known  to  the  public,  as  splendid  means  of  drawing  trade 
to  his  store.  The  bait  worked.  Not  only  did  he  draw  cus- 
tomers to  his  store  for  the  cut-priced  standard  goods,  but 
he  sold  them  other  goods  upon  which  the  prices  were  not 
cut  and  upon  which  his  profits  were  sufficient  to  make  up 
for  the  losses  on  the  cut-priced  article. 

Thereupon  other  dealers  in  the  community  handling  the 
same  article,  were  forced  either  to  cut  the  price  on  this  article 
also  or  to  substitute  for  it  some  other  article,  and  do  every- 
thing possible  to  counteract  the  trade-drawing  influence  upon 
the  public  mind  of  the  combination  of  a  bargain  price  and 
a  standard,  well-known  article. 

The  next  time  the  representative  selling  this  particular 
standard  article  visited  this  town,  the  retailers  (all  but  the 
price  cutter)  would  refuse  to  buy  any  more.  Not  that  the 
goods  were  unsatisfactory  in  any  way  to  either  the  dealers 
or  the  public,  but  the  retailers  did  not  want  to  handle  them 
because  to  do  so  meant  a  loss.  They  could  not  be  expected 
to  conduct  a  store  and  to  sell  goods  without  some  return 
for  their  services  and  outlay.  Consequently  the  salesman 
g^ot  no  orders  from  this  town,  except  from  the  price  cutter, 


258  ECONOMICS  OF  RETAILING 

and  after  customers  had  purchased  as  much  of  the  article 
as  there  seemed  to  be  an  immediate  demand  for,  and  when 
it  seemed  to  lose  its  power  as  a  trade  attractor,  then  it  was 
time  for  the  price  cutter  to  drop  this  article  and  to  use  some 
other  standard  article  as  a  leader.  Hence  the  producer  lost 
not  only  his  outlet  through  the  other  retailers,  but  also 
through  the  price  cutter  as  well. 

After  such  incidents  had  happened  in  several  communi- 
ties the  producer  began  to  sit  up  and  take  notice.  What 
could  he  do  about  it? 

If  he  had  a  monopoly  on  the  production  of  his  kind  of 
goods,  and  if  they  constituted  one  of  the  necessities  of  life 
of  large  classes  of  people,  he  could  probably  disregard  local 
price-cutting  difficulties.  The  dealers  would  be  forced 
by  public  demand  to  carry  the  goods  whether  they  received 
any  profit  for  their  services  or  not. 

If  the  producer  was  the  owner  of  large  plants  making 
many  different  kinds  of  articles  and  had  plenty  of  capital 
behind  him,  he  might  not  be  worried  by  local  price-cutting. 
If  the  regular  dealers  could  not  agree  to  sell  his  goods  with- 
out friction,  he  could  develop  a  selling  organization  of  his 
own,  pass  over  the  heads  of  the  jobbers,  and  sell  direct  to 
retailers.  In  this  way  he  could  select  his  customers  and 
sell  to  those  only  who  would  agree  to  maintain  prices.  He 
could  refuse  goods  to  the  price  cutter  simply  by  not  going 
near  him,  or  by  pleading  inability  to  fill  his  orders  if  they 
were  sent  in  by  mail. 

If  this  plan  still  left  something  to  be  desired,  he  could 
start  agencies,  branch  stores,  or  other  outlets  all  of  his  own, 
where  no  one  could  question  his  right  to  sell  his  goods  at 
the  standard  price. 

With  large  amounts  of  capital  to  spend  in  advertising, 
the  producer  might  even  be  able  to  create  a  consumer- 


PRICE-MAINTENANCE 


259 


demand,  strong  enough  to  force  regular  dealers  to  carry 
the  goods  even  against  their  wishes. 

But  note  the  additional  expense  in  all  of  these  methods, 
the  friction,  and  the  unnecessary  duplication  of  effort.  It 
is  a  principle  in  business  economics  that  any  method  of  dis- 
tributing goods  which  attempts  to  proceed  without  the 
active  co-operation  of  the  distributing  agents  is  uneconomical 
and  wasteful.  Where  there  is  waste  somebody  must  pay 
the  bill.  In  some  cases,  it  might  mean  a  loss  to  the  manu- 
facturer, but  where  the  wasteful  way  is  the  regular  way,  the 
burden  would  be  shifted  to  the  consumer. 

But  if  the  producer  were  a  small  manufacturer  with 
Hmited  capital,  or  a  manufacturer  of  a  single  commodity  of 
small  price  value,  he  could  hardly  disregard  the  effects  of 
local  price-cutting.  He  would  find  his  business  slipping 
from  him  in  one  community  after  another,  no  matter  how 
well  his  product  was  made,  and  no  matter  how  well  the 
consumers  of  that  product  were  satisfied  with  it.  What 
would  be  the  remedy? 

He  might  give  up  advertising  and  making  goods  of 
standardized  qualities,  and  go  back  to  producing  competi- 
tion stock  with  cheapness  as  his  aim. 

He  might  unite  with  or  sell  out  to  some  other  manu- 
facturer with  an  independent  selling  organization,  enabling 
him  to  carry  the  goods  direct  to  retailers  or  consumers  in 
the  manner  that  some  large  plants  now  do. 

He  might  unite  his  plant  to  some  selling  organization 
such  as  a  mail  order  house,  department  store,  jobbing  con- 
cern, or  chain-store  system.  Although  some  such  distrib- 
uting concerns  are  taking  over  many  factories,  they  are,  on 
the  whole,  not  anxious  to  do  so  except  when  the  factory  is 
sold  to  them  at  a  great  sacrifice.  Some  of  these  selling 
organizations,  according  to  their  own  statements,  can  get 


26o  ECONOMICS  OF  RETAILING 

abundant  supplies  of  goods  at  prices  lower  than  they  could 
possibly  manufacture  them  for  themselves.  Some  of  such 
businesses  are  built  on  the  policy  of  collecting  and  disposing 
of  lots  of  goods  at  figures  below  the  normal  costs  of  pro- 
duction. The  losses  are  the  producer's,  the  gains  the  dis- 
tributor's, rarely  the  consumers'. 

He  might  surrender  his  plant  to  a  trust  which  is,  singu- 
larly enough,  almost  always  incipient  in  industries  suffering 
from  price-cutting  competition. 

His  only  other  alternative  was  to  attempt  to  suggest  or 
name  prices  for  which  his  goods  were  to  be  sold  by  the 
dealers  who  handled  them,  and  prevent  anyone  from  chang- 
ing these  prices.  It  was  because  of  the  conditions  just 
described  that  the  price-maintenance  policy  was  devised. 
Several  manufacturers  began  carrying  out  the  plan  during 
the  70's  and  80's,  but  its  main  development  has  come  during 
the  last  twelve  or  fifteen  years. 

To  prevent  price-cutting  on  standardized  goods  among 
certain  dealers  who  chose  this  method  of  attracting  trade 
to  their  stores,  the  producers  sought  protection  under  the 
law.  But  as  the  need  was  new  and  the  law  was  old,  it  is 
not  to  be  wondered  at  that  but  little  protection  for  the 
price-maintenance  policy  could  be  found  therein.  Prior  to 
1907,  however,  both  state  and  federal  courts  uniformly 
sanctioned  the  price-maintenance  principle.^ 

The  recent  decisions  of  the  Supreme  Court  of  the  United 
States  do  not  prohibit  the  price-maintenance  principle. 
They  simply  prohibit  certain  methods  of  price-maintenance, 
the  most  economical  from  the  standpoint  of  independent 
producers  and  the  public.  Price-maintenance  is  now  per- 
fectly possible,  and  legally  legitimate,  if  the  producer  is  able 
to  build  a  selling  organization  of  his  own,  and  is  able  to 
sell  direct  to  consumers  by  means  of  his  own  agents  or 

I  See  Appendix  VII,  "  Judicial  and  Other  Action  Affegting  Price-M5^intenanc§." 


PRICE-MAINTENANCE  261 

salesmen  or  through  chain  or  branch  stores.  It  is  still  pos- 
sible if  the  manufacturer  builds  a  selling  organization  of 
his  own  and  sells  direct  to  retailers.  If  the  retailer,  to  whom 
he  sells,  cuts  prices,  he  can  refuse  to  let  him  have  more  goods. 
Probably,  the  manufacturer  can  appoint  any  or  all  retailers 
of  his  Hne  as  his  agents  and  direct  them  in  the  matter  of 
resale  price  as  well  as  in  any  other  particular.  The  manu- 
facturer can  consign  his  goods  to  his  agents  with  instruc- 
tions to  sell  at  a  specified  price. 

But  all  of  these  methods  involve  great  expense  in  build- 
ing up  sales  organizations  that  in  a  measure  simply  duplicate 
organizations  already  in  the  field.  Going  through  the  for- 
mality of  appointing  agents,  sending  out  goods  on  consign- 
ment, and  making  collections  involve  a  large  additional  sell- 
ing expense  compared  with  the  regular  methods  of  distribu- 
tion. Thus,  while  price-maintenance  has  not  been  prohib- 
ited, it  is  now  legally  practicable  only  for  the  larger  and 
more  powerful  producers.  The  added  and  unnecessary  ex- 
pense involved  in  conforming  the  distribution  of  such  goods 
to  the  views  of  courts  basing  their  decisions  on  laws  that  do 
not  apply  to  the  case  at  all,  must  ultimately  be  borne  by  the 
consumers. 

Such  then  is  the  status  of  price-maintenance  at  the 
present  time.  Manufacturers  of  specialties,  depending  for 
distribution  upon  the  regular  channels  of  trade,  and  manu- 
facturers without  selling  organizations  of  their  own  but  who 
produce  goods  that  must  be  widely  distributed,  are  in  favor 
of  price-maintenance. 

Manufacturers  who  have  monopolies  in  the  production 
of  necessaries  of  life  are  indifferent  to  price-maintenance. 
Manufacturers  with  well-developed  selling  organizations  of 
their  own  that  reach  the  retailers  or  the  consumers  directly, 
not  only  do  not  care  for  price-maintenance,  but  seem  to  be 
hostile  towards  it,  probably  for  the  reason  that  they  do  not 


262  ECONOMICS  OF  RETAILING 

need  it  themselves  and  fear  if  it  should  be  made  permissible, 
new  factors  of  competition  would  have  to  be  faced. 

Wholesalers  are  either  for  or  against  price-maintenance 
according  to  whether  or  not  they  have  special  brands  of 
goods  that  they  desire  to  push.  The  wholesaler  with  a 
brand  of  goods  of  his  own  is  in  much  the  same  position  as 
the  manufacturer  with  a  well-developed  selling  organization; 
he  has  nothing  to  gain  by  legalized  price-maintenance.  His 
selling  organization  accomplishes  directly  and  effectively 
what  other  producers  without  selling  organizations  hope  for 
through  price-maintenance.  He,  too,  fears  that  if  price- 
maintenance  were  made  possible  his  present  competitive 
market  advantages  would  be  more  nearly  equalled  by 
specialty  manufacturers. 

Retailers  as  a  class  seem  to  be  in  favor  of  price- 
maintenance.^ 

Those  who  favor  price-standardization  claim  that  its 
employment  results  in  a  square  deal  to  all  concerned  —  to 
producers,  distributors,  and  consumers.  It  is  held  that  the 
policy  is  beneficial  to  producers,  and  makes  it  unnecessary 
for  a  producer  to  compete  with  articles  that  he  has  made 
himself,  and  that  it  enables  him  to  seek  the  most  economical 
methods  of  distributing  his  goods.  It  is  claimed  that  the 
policy  provides  a  reasonable  profit,  no  more  nor  less,  for 
the  dealers,  and  that  it  insures  a  product  of  standard  quali- 
ties at  a  fair  price  in  each  case  to  all  consumers.  Without 
price-standardization,  it  is  claimed,  manufacturers  are  forced 

2 "  In  answer  to  the  query  whether  dealers  favor  price  standardization  the 
Eastman  Kodak  Company  and  A,  J,  Reach  Company  received  answers  from  over 
90  per  cent  of  the  retailers  carrying  their  goods  and  in  each  case  ^8  i>er  cent 
voted  for  price-maintenance.  A  similar  census  taken  by  the  Waterman  Fountain 
Pen  Company  showed  98  per  cent  favoring  that  form  of  merchandising.  Out  of 
fourteen  hundred  and  five  replies  received  by  the  Kellogg  Toasted  Corn  Flake 
Company  to  the  same  question,  only  eight  dealers  were  against  the  maintenance  of 
uniform  prices.  And  in  six  thousand  votes  cast  by  retail  jewelers  in  the  Ham- 
ilton Watch  Company  poll,  there  were  only  three  opposed  to  the  enforcement 
of  standard  prices."  Quoted  from  an  article  by  Chas.  L.  Miller,  in  the  Univ. 
of  Pa.  Law  Review,  November,  1914,  entitled  "  The  Maintenance  of  Uniform 
Resale  Prices." 


PRICE-MAINTENANCE  263 

to  combine  into  trusts  to  protect  their  goods;  and  small, 
independent  dealers  are  driven  out  of  business  by  large 
retailing  concerns  that  use  price-cutting  merely  as  a  bait  to 
attract  trade,  and  who  make  up  for  cuts  in  their  prices  on 
some  goods  by  overcharges  on  other  goods. 

The  reasons  given  in  opposition  to  price-maintenance  are 
that  it  interferes  with  the  rights  of  property;  that  it  makes 
the  dealer  the  '*  manufacturer's  slot  machine  "  or  "  errand 
boy,"  that  it  constitutes  injurious  restraint  of  trade,  that 
it  prevents  dealers  who  are  able  to  do  so,  to  sell  more 
cheaply  than  other  dealers,  that  it  protects  the  inefficient 
dealer  at  the  expense  of  the  consumer,  and  that  the  con- 
sumer must  pay  higher  prices  for  his  goods  than  he  otherwise 
would. 

Several  other  arguments  are  offered  on  both  sides,  but 
all  attempt  justification  on  one  or  the  other  of  two  grounds, 
viz.,  economy  to  the  consumer,  and  fairness  to  all  parties 
concerned. 

To  the  argument  that  price-maintenance  interferes  with 
the  dealer's  rights  of  property  but  little  space  can  be  given 
here.  This  is  a  question  that  may  be  handled  much  better 
from  the  legal  than  from  an  economic  standpoint.  Property 
rights  are  held  by  individuals  by  permission  of  society.  In- 
dividuals are  protected  in  those  rights  because  it  is  assumed 
that  the  welfare  of  society  is  best  promoted  by  such  a  course 
of  action.  Wherever  an  individual  exercises  a  right  or  privi- 
lege that  militates  against  the  best  interests  of  society  that 
right  is  subject  to  restriction  to  fit  the  needs  of  the  case. 
Whether  the  restraints  placed  upon  dealers  by  price-main- 
tenance are  reasonable  or  not,  depends  upon  their  effect 
upon  all  concerned.  Whatever  is  found  to  be  of  the  great- 
est good  to  the  greatest  number  must  here  as  elsewhere 
determine  the  proper  course.  It  may  be  safely  assumed  that 
such  rights  are  not  greatly  endangered  if  it  be  true,  as  the 


264  ECONOMICS  OF  RETAILING 

evidence  seems  to  indicate,  that  the  great  majority  of  inde-j 
pendent  retailers,  the  country  over,  are  in  favor  of  price- 
maintenance. 

The  pubHc  is  not  much  interested  in  the  objection  that 
price-maintenance  makes  the  dealer  the  "errand  boy"  of 
the  manufacturer,  nor  are  most  dealers  apprehensive  of  the 
odious  relationship  suggested  by  this  expression.  The 
dealer  is  in  business  to  perform  a  service  for  the  public  for 
which  he  expects  a  profit.  Whether  the  profit  may  be  made 
most  easily  by  handling  goods  advertised  and  guaranteed 
by  the  manufacturer,  or  goods  advertised  by  himself,  makes 
but  little  difference,  so  long  as  there  is  profit  in  them.  There 
are  numberless  ways  in  which  a  retailer  can  individualize 
his  business,  other  than  by  charging  a  higher  or  lower  price 
than  that  set  by  manufacturers. 

That  price-maintenance  constitutes  injurious  restraint  of 
trade  and  tends  towards  monoply,  if  it  be  true,  is  of  much 
greater  significance  to  the  public.  But  the  monopolist,  as 
we  have  seen,  is  little  interested  in  maintaining  prices  at 
which  dealers  are  to  resell,  and  the  price-fixing  of  the 
monoply  is  an  entirely  different  thing  from  price-main- 
tenance. 

The  price-fixing  of  combinations  is  dangerous  to  the 
public  because  the  combination  controls  a  cross-section  of 
the  machinery  of  business,  and  it  is  made  up  either  of  pro- 
ducers making  the  same  or  similar  sorts  of  things,  or  of 
dealers  selling  the  same  sorts  of  things.  Price-maintenance 
means  longitudinal  co-operation  in  the  channels  of  trade. 
The  former  eliminates  competition  and  raises  prices  to  the 
point  of  maximum  profit  to  the  group  concerned.  The 
latter  breeds  competition,  if  not  in  price,  certainly  in  quality 
and  service,  hinders  the  forming  of  monopolistic  combina- 
tions among  dealers,  and  permits  the  manufacturer  of  a 
specialty  to  continue  to  exist  independently, 


PRICE-MAINTENANCE  265 

Price-maintenance  restricts  competition  among  the  pro- 
ducer's own  products,  but  in  doing  so  it  sets  the  energies  of 
the  producer  free  to  work  out  the  most  economical  system 
of  distribution  possible  for  his  particular  kind  of  goods. 
Where  price-maintenance  does  not  prevail,  the  producer, 
without  channels  of  distribution  of  his  own,  must  not  only 
struggle  with  his  competitors  among  the  producers,  but  also 
with  the  goods  he  has  produced  remaining  in  the  hands  of 
dealers.  In  other  words,  he  has  unwittingly  become  a  second 
Frankenstein  and  must  avoid  destruction  at  the  hands  of 
his  own  creation. 

We  have  seen  that  a  struggle  of  this  kind  is  hkely  to 
force  a  small  manufacturer  to  cheapen  the  qualities  of  his 
goods  and  to  attempt  to  get  distribution  by  stimulating  ex- 
cellence; or  to  combine  with  some  other  manufacturer  who 
has  a  selhng  organization  reaching  direct  to  the  retailers,  or 
to  combine  or  sell  out  to  some  large  selling  organization 
such  as  a  mail  order  house,  department  store,  or  chain-store 
system,  or  to  surrender  to  a  trust. 

None  of  these  results  in  themselves  are  desirable  from 
the  standpoint  of  the  consumer  or  the  public.  The  Ameri- 
can people  do  not  look  upon  the  development  of  great  busi- 
ness and  commercial  organizations  with  easy  minds.  Our 
experience  with  industrial  combinations  has  not  yet  clearly 
indicated  the  way  to  handle  these  concerns.  One  may  not 
be  pessimistic  about  the  future,  and  still  grant  that  the 
development  of  such  concerns  brings  new  and  difficult  prob- 
lems for  our  government  to  solve. 

That  price-standardization  has  no  necessary  connection 
with  monoply  prices  and  profits  should  be  obvious.  If  a 
producer  has  a  monoply  in  his  line  of  goods,  he  is  in  a  posi- 
tion to  get  a  monopoly  profit  whether  price-maintenance  is 
employed  or  not.  It  is  more  than  likely  that  such  producers 
when  they  name  the  resale  prices,  will  fix  them  at  a  point 


266  ECONOMICS  OF  RETAILING 

that  will  not  give  the  retailer  any  net  profit  at  all,  for  after 
their  own  profits  have  been  provided  for,  it  would  seem  to 
be  to  their  interest  to  get  the  goods  to  the  consumer  with 
as  small  additions  to  the  price  as  possible  in  order  to  enjoy 
a  large  volume  of  sales.  At  any  rate,  such  was  the  experi- 
ence of  dealers  under  the  price-maintenance  regulations  of 
the  Sugar  Trust  a  few  years  ago.  After  a  time  of  experi- 
ment with  the  policy,  aimed  at  reducing  the  friction  among 
dealers  due  to  price-cutting,  it  was  given  up. 

That  price-maintenance  does  not  prevent  competition 
will  be  clear  when  one  observes  that  there  are  a  dozen  well- 
known  safety  razors  on  the  market,  scores  of  varieties  of 
corn  flakes,  several  brands  of  grape  juice,  probably  hun- 
dreds of  brands  of  shoes,  several  brands  of  collars  and  cuffs, 
dozens  of  makes  of  cameras,  dozens  of  brands  of  hosiery, 
corsets,  hats,  and  so  on ;  lines  in  which  some  manufacturers 
have  maintained  their  prices  for  years.  A  standardized 
article  at  a  fixed  price  attracts  both  direct  competition  and 
substitution.  It  will  always  be  found  profitable  to  make 
variations  from  time  to  time  both  above  and  below  the 
quality  of  the  standard  article  to  suit  individual  tastes  and 
means.  In  fact,  price-standardization  makes  such  competi- 
tion possible. 

That  the  price-maintenance  policy  results  in  higher  prices 
to  consumers  is  subject  to  doubt.  Certain  investigations 
have  been  made,  which,  so  far  as  they  go,  show  that  articles 
sold  at  maintained  prices  are  no  higher  on  the  average  than 
goods  of  the  same  quality  that  are  not  price-maintained. 
Nor  are  the  profits  made  by  the  dealers  on  price-maintained 
goods  any  larger  than  on  other  goods  of  the  same  kinds, 
but  not  price-maintained.  On  the  contrary,  the  prices  and 
profits  seem  to  be  somewhat  lower  on  the  price-maintained 
goods  than  on  competing  goods  not  so  restricted. 

The  main  difference  between  the  two  classes  of  prices 


I 


PRICE-MAINTENANCE  267 


is  the  stability  of  both  price  and  profit  of  the  price-main- 
tained goods  while  the  prices  and  profits  on  unstandardized 
and  non-price-maintained  goods  vary  widely  from  time  to 
time.  This  suggests  that,  possibly,  dealers  who  object  to 
price-standardization  do  so  because  of  the  desire  to  sell  at 
higher  than  regular  prices  almost  as  often  as  they  desire  to 
cut  the  prices.^ 

In  fixing  upon  a  price  at  which  a  competitive  article  is 
to  be  sold  to  the  consumer,  the  producer,  who  desires  to 
maintain  a  standard  price,  is  confronted  by  two  considera- 
tions. One  is  that  he  must  allow  the  retailer  who  is  to 
handle  his  goods  enough  profit  so  that  he  will  be  satisfied 
to  handle  them.  On  the  other  hand,  the  price  must  be  kept 
as  low  as  possible  to  the  consumer  in  order  that  the  sales 
volume  may  be  high.  Every  addition  to  the  price  reduces 
the  quantity  sold.  This  is  an  almost  universal  fact.  As 
an  illustration  of  this  point,  consider  the  case  of  a  manu- 
facturer in  the  Middle  West  who  put  out  an  article  which 
was  sold  to  consimiers  for  35  cents.  After  some  months, 
he  concluded  to  have  the  price  changed  to  25  cents.  As  a 
result  the  sales  increased  twelvefold.  Knowing  that  con- 
sumer-demand varies  to  a  very  considerable  extent  in  nearly 
all  classes  of  goods  in  accordance  with  the  price,  the  pro- 
ducer is  likely  to  fix  the  retail  price  at  a  point  that  will  allow 
the  retail  dealer  as  small  an  amount  as  he  dares,  an  amount 
sufficient  only  to  cover  the  expenses  of  doing  business  in  an 

3  In  a  hearing  before  the  Committee  on  Patents  in  the  House  of  Representa- 
tives, May  30,  1912,  Wm.  R.  Ingersoll,  of  the  firm  of  Robt.  H.  IngersoU  and 
Brother,  New  York  City,  presented  a  list  of  the  prices  and  profits  made  by  re- 
tailers on  55  price-maintained  articles  and  142  articles  of  the  same  classes  but 
not  price-maintained.  This  list  has  been  quoted  by  Printers'  Ink  and  also  by 
Professor  Paul  T.  Cherington  in  his  "  Advertising  as  a  Business  Force." 

The  writer  has  verified  a  number  of  the  figures  given  in  this  list,  and,  except 
for  minor  inaccuracies  that  might  be  explained  by  changes  in  prices  and  difference 
in  territory  in  which  the  information  was  obtained,  has  found  them  correct.  So 
far  as  known  the  fairness  of  the  list,  though  the  latter  was  compiled  by  one  who 
favors  price-maintenance,  has  not  been  challenged.  In  the  hearings  on  the  price- 
maintenance  question  before  congressional  committees,  no  price  comparisons 
were  presented  by  those  who  opposed  the  policy. 


268  ECONOMICS  OF  RETAILING 

efficient  retail  store,  plus  a  fair  net  profit.  Inefficient  deal- 
ers and  other  classes  of  retail  stores  with  high  expenses  may 
obtain  no  net  profit  at  all. 

Speaking  upon  this  point,  F.  W.  Aldred,  Secretary  of  the 
B.  H.  Gladding  Dry  Goods  Company,  a  large  department 
store  in  Providence,  Rhode  Island,  said : 

"  The  tendency  for  the  successful  national  advertiser 
(the  producer  of  standardized  goods)  is  gradually  to  lower 
the  possible  profit  of  the  retailer  until  this  profit  gets  to  or 
below  the  retailer's  cost  of  doing  business.  This  is  a  major 
reason  why  the  retailer,  whose  expenses  for  all  kinds  of 
service  are  continually  being  jacked  up  by  competition  and 
the  requirements  of  his  customers,  is  becoming  less  and  less 
anxious  to  exploit  trade-marked  goods  and  more  and  more 
anxious  to  put  his  own  brand  on  the  market,  or,  at  least, 
have  no  name  but  his  own  connected  with  the  goods.  .  .  . 
I  believe  nine  out  of  ten  advertising  sales-managers  of  the 
larger  stores  will  substantially  agree  with  me  in  most  of  the 
above."  ^ 

Price-maintenance  makes  it  possible  for  specialty  manu- 
facturers to  produce  standard  goods  of  standard  qualities  to 
which  they  may  attach  their  names  and  guaranty  to  the 
consumer.  There  is  no  object  in  maintaining  prices  on 
goods  that  are  not  standardized  in  quality,  and  it  does  not 
pay  the  producer  at  the  present  time  to  try  to  maintain 
quality  and  advertise  it  to  the  consumer  without  some  assur- 
ance that  dealers  will  not  make  a  football  of  it.  Such 
standardization  and  identification  of  merchandise  by  pro- 
ducers is  desirable  for  the  public  for  several  reasons. 

First,  the  consumer  can  tell  by  one  single  inspection  or 
trial,  whether  such  an  article  is  suited  to  his  needs  or  not. 
If  it  is  desirable,  future  purchases  of  the  same  article  will 
take  up  but  little  time  or  energy.     If  it  is  not  desirable,  he 

4  Printers'  Ink,  June  13,  1912. 


PRICE-MAINTENANCE  269 

can  just  as  easily  avoid  getting  it.  Thus  the  buying  process 
of  the  consumer  is  simplified,  and  time  and  energy  are  saved. 

Second,  the  standardized  article  saves  both  the  con- 
sumer's and  dealer's  time  usually  taken  up  in  demonstrating 
the  goods.  The  consumer  is  assured  of  the  quality  he  is 
getting  without  taking  the  time  and  pains  to  make  a  careful 
examination  before  purchasing.  The  dealer  is  saved  the 
time  that  is  usually  taken  to  describe  and  push  the  unknown, 
unstandardized  article.  In  these  days,  with  our  complex 
standards  of  living,  these  savings  are  highly  important. 

Third,  the  standard  article  serves  as  a  basis  of  compari- 
son. When  the  dealer  substitutes  another  article,  and  tells 
the  consumer,  "  This  is  just  as  good,"  or  "  This  is  a  better 
article,"  assuming  that  what  the  dealer  says  is  true,  the  con- 
sumer knows  what  he  means.  He  is  getting  a  clear  idea  of 
what  the  dealer  claims.  He  is  able  to  hold  him  to  his 
statements. 

There  are,  of  course,  standard  goods  which  are  not  price- 
maintained,  but  they  are  generally  goods  produced  either 
by  trusts  or  by  concerns  having  power  sufficient  to  push 
them  through  to  the  consumer  even  without  the  active  con- 
sent of  the  dealers.  A  large  number  of  standard  goods  are 
of  necessity  price-maintained,  whether  the  process  is  legal 
or  not.  * 

It  is  usually  assumed  that  price-cutting  benefits  the  con- 
sumers. It  cannot  be  denied  if  an  individual  buys  a  regular 
$1  article  for  79  cents  that  he  is  a  gainer  by  21  cents.  But 
such  cuts  in  price  cannot  be  made  by  any  retail  store,  large 
or  small,  without  losing  money.  After  the  expenses  of 
retail  stores  are  paid  the  usual  margins  of  profit  are  never 
wide.  A  very  large  number  of  retail  stores  are  not  able  to 
earn  any  net  profits  at  all.  The  best  they  can  do  is  to  pay 
their  expenses.  It  is  commonly  asserted  that  90  per  cent 
of  the  retail  dealers  fail  sooner  or  later.     What  does  this 


270 


ECONOMICS  OF  RETAILING 


mean  but  that  in  the  long  run  the  majority  of  retailers  are 
not  only  unable  to  make  any  net  profits,  but  are  also  unable 
to  hold  their  own  and  meet  their  expenses  in  full?     Price- 
cutting  under  such  circumstances  means  that  what  is  cut  off  ^1 
at  one  place  must  be  made  up  at  some  other.     There  is  no*| 
choice  about  this  if  business  is  to  go  on. 

Nor  is  there  any  conclusive  evidence  that  concerns  that 
practice  price-cutting  are  really  operating  their  businesses 
upon  lower  gross  profit  margins  and  lower  costs  of  doing 
business  than  regular  stores.  If  it  could  be  shown  that  these 
institutions  can  supply  consumers  at  a  lower  expense  than 
others,  then  it  would  seem  wise  economic  policy  to  encourage 
them  by  every  means  possible,  and  a  price-maintenance  policy 
should  not  be  allowed  to  stand  in  their  way.  Such  figures 
as  are  available  seem  to  show,  all  things  considered,  that  the 
costs  of  distribution  are  practically  the  same  through  the 
department  stores,  chain  stores,  and  mail  order  houses,  as 
through  the  regular  distribution  agencies.  Advantages  of 
some  kinds  are  found  in  the  case  of  each,  but  the  advantages 
are  counterbalanced  in  each  case  by  disadvantages  as  well. 
Certainly  there  seems  to  be  but  little  economic  argument  in 
favor  of  the  big  retail  store  as  against  the  small  store.  Until 
further  evidence  is  obtained  it  must  be  held  that  large-store 
efficiency  does  not  lie  in  the  ability  to  sell  goods  at  a  lower 
percentage  of  expense  than  the  small  store.  Whatever 
economies  or  savings  there  may  be  in  large-scale  production, 
the  same  rule  does  not  seem  to  hold  for  retail  distribution. 

The  peculiar  strength  of  the  large  retailing  institutions 
without  question  lies  in  their  advertising  and  buying  powers. 
In  their  advertising  they  get  maximum  efficiency  by  using 
large  space  and  by  employing  the  most  skilled  writers  to 
fill  this  space.  The  size  of  the  institution  and  the  amount 
of  goods  displayed  therein  is  in  itself  a  magnet  to  crowds. 
In  buying,  the  giant  retailing  concern  gets  all  of  the  regular 


PRICE-MAINTENANCE  27 1 

discounts  for  quantity  and  cash  and  frequently  other  rebates 
and  discounts  similar  in  nature  to  those  which  the  railroads 
Used  to  give  the  big  shippers  before  the  Interstate  Commerce 
Act  was  passed  to  stop  such  unjust  discrimination.  By  the 
pressure  of  their  financial  power  they  force  undue  differen- 
tials from  their  suppliers.  It  is  true  that  some  retailing 
concerns  of  this  class  become  manufacturers  of  parts  of  their 
own  goods,  but  it  is  also  true  that  a  large  number  of  them 
prefer  not  to  take  over  factories,  because  they  can  buy  goods 
cheaper  from  other  mills  than  they  can  make  them  for 
themselves. 

Because  the  big  retail  concern  is  sometimes  able  to 
buy  goods  at  less  than  costs  of  manufacture,  it  is  enabled  to 
sell  goods  to  the  public,  when  it  finds  it  necessary  to  do  so, 
at  prices  lower  than  those  of  the  small  dealer  and  still  make 
a  good  profit.  Both  the  reduced  price  to  the  public  and  the 
profit  are  due,  not  to  efficiency  in  distribution,  but  to  the 
special  inside  price  granted  the  big  store  by  the  producer. 

But  undoubtedly  the  time  will  come  when  special  inside 
prices  and  quantity  discounts  will  come  under  public  observa- 
tion and  regulation.  In  the  public  utilities  inside  prices  are 
now  forbidden.  Railroads  are  no  longer  permitted  to  make 
discriminatory  rates  to  big  shippers  as  they  once  did.  The 
government  does  not  make  a  difference  in  price  to  different 
persons  in  the  sale  of  postage  stamps  no  matter  what  the 
quantity  purchased. 

There  may  be  some  justification  for  a  quantity  price  or 
discount  when  based  on  items  of  saving  to  the  manufacturer 
such  as  storage,  insurance,  interest  on  the  money  invested, 
and  reduced  costs  of  handling,  but  the  dealer  who  gets  a 
discount  just  equivalent  to  these  items  is  not  thereby  enabled 
to  undersell  others.  The  items  of  storage,  insurance,  in- 
terest, and  handling  must  in  this  case  be  met  by  him  instead 
of  the  manufacturer,  and  the  retail  price  must  cover  these 


272 


ECONOMICS  OF  RETAILING 


expenses  just  the  same  as  in  any  other  case.  But  there  is 
very  little  social  justification  for  a  quantity  discount  or 
inside  price  that  discriminates  between  buyers  to  the  material 
advantage  of  one  and  to  the  disadvantage  of  others.  It  does 
not  seem  at  all  unlikely  that  such  discrimination  will  some 
day  call  for  legislative  or  other  regulative  action  of  the  same 
kind  and  for  the  same  reasons  as  that  taken  in  the  case  of 
the  public  utilities. 

In  the  meantime  many  manufacturers  who  have  seen 
the  outcome  of  such  market  discrimination  are  discarding  the 
policy  of  giving  quantity  prices  altogether.  The  quantity 
price  that  cannot  be  justified  by  economic  reasons  is  out  of 
date  and  unworthy  of  our  times.  It  bears  no  relation  to 
efficiency  and  comes  into  existence  almost  because  of  the 
coercion  or  pressure  of  big  capital. 

President  Wilson  has  said: 

"  Safeguard  American  men  against  unfair  competition 
and  they  will  take  care  of  themselves.  ...  If  you  make 
the  processes  by  which  small  men  are  undersold  in  particular 
markets  criminal,  then  you  have  freed  America,  and  I  for 
my  part  am  willing  to  stop  there  and  see  who  has  the  best 
brains." 

The  cut  price  to  the  public  does  not  represent  purchases 
made  by  the  dealer  at  inside  prices  as  frequently,  probably, 
as  it  represents  a  device  used  to  attract  trade.  On  the  whole 
the  cut  price  in  most  retail  stores  is  of  psychologic  rather 
than  economic  significance.  Its  purpose  is  to  attract  trade. 
When  the  prospective  customer  enters  some  stores,  it  is  thfe 
well-understood  duty  of  the  salespeople  to  try  to  sell  him 
something  else,  or  in  addition  to,  the  cut-price  leader.  One 
can  safely  agree  with  John  Wanamaker,  that  greatest  of  all 
living  American  merchants,  when  he  said : 

"  I  want  to  keep  away  from  the  store  that  tries  to  catch 
me  with  that  kind  of  a  fish  hook.     If  they  lose  on  one  thing 


PRICE-MAINTENANCE 


273 


J  they  will  put  it  on  something  else  you  do  not  know  of. 
There  are  things  purchasers  do  not  know  anything  about."  ^ 

No  article  serves  the  purpose  of  price-cutting  so  well  as 
a  standard  article  generally  sold  at  a  fixed,  well-known  price. 
Everybody  recognizes  such  a  bargain,  but  few  people  recog- 
nize the  full  significance  of  what  happens  to  them  when  they 
.  get  into  the  store  offering  the  bargain. 

The  small  storekeeper  is  probably  no  better  in  his  busi- 
ness morals  than  the  big  store  manager,  but  his  opportunity 
for  playing  the  same  game  on  the  public  is  much  more 
limited.  The  retailer  of  one  line  cannot  cut  prices  on  many 
things  or  he  will  be  without  a  business  in  a  short  time.  But 
the  big  retail  institution  with  twenty-five  or  more  depart- 
ments can  cut  prices  in  any  one  of  these  departments 
on  every  article  in  the  department,  if  it  chooses  to  do  so, 
and  make  up  daily  its  deficits  in  that  department  by  the 
profits  from  the  other  departments.  In  this  way  the  big 
store  can  carry  on  war  with  all  the  merchants  of  some  one 
line  in  its  town  and  practically  drive  them  out  of  business 
in  the  same  way  that  the  Standard  Oil  Company  used  to  kill 
off  its  competitors  by  selling  oil  at  less  than  cost  in  the 
competitor's  territory  and  at  big  profit  in  its  own  territory. 

Price-maintenance  prevents  the  big  retailing  concern 
from  using  such  unfair  tactics.  If  the  small  independent 
store  handles  price-maintained  articles  its  profits  will  not  be 
small,  and  the  big  store  will  not  be  able  to  crush  it  out. 

To  give  to  the  big  store,  the  chain  store,  and  the  mail 
order  house  the  free  hand  that  some  of  them  desire  in  such 
matters  as  those  under  discussion  here  will  only  lead  to  a 
deeper  accentuation  of  some  of  the  economic  ills  that  already 
beset  us,  such,  for  example,  as  the  consolidation  of  inde- 
pendent specialty  manufacturers  into  trusts,  the  concentra- 
tion of  retail  markets  in  the  large  cities  and  in  certain  sec- 

5  Report  of  U.  S.  Industrial  Commission,  Vol.  VII,  p.  465. 


274  ECONOMICS  OF  RETAILING 

tions  of  those  large  cities,  the  piling  up  of  enormous  un- 
earned increments  in  land  values  in  these  sections  and  the 
depreciation  in  values  in,  and  the  decay  of,  small  towns. 
As  a  citizen,  one  cannot  lightly  pass  this  struggle  by  without 
considering  what  the  effect  will  be. 

What  has  been  said  should  not  be  considered  as  a  criti- 
cism of  the  larger  types  of  retailing  concerns.  There  is  no 
question  but  that  these  perform  some  services  for  the  public 
much  better  than  the  smaller  stores.  Large  numbers  of  the 
big  department  stores,  probably  a  majority  of  them,  are  as 
much  opposed  to  unfair  methods  as  any  one  possibly  could 
be.  These  concerns  are  appealing  for  trade  on  straight- 
forward lines,  selling  goods  for  what  they  really  are,  and 
performing  their  service  in  a  most  creditable  manner.  It  is 
likely  that  the  highest  type  of  retail  merchandising  in  exist- 
ence today,  considering  service  to  customers,  treatment  of 
employees,  and  general  public  spirit,  is  to  be  found  in  some 
of  the  best  department  stores.  But  these  are  not  the  con- 
cerns that  are  strongly  opposing  price-maintenance. 

In  conclusion,  price-maintenance  is  a  need  of  modern 
production.  The  demand  for  it  comes  from  the  small  manu- 
facturer, or  the  producer  of  a  specialty,  rather  than  the  big 
concern,  the  producer  of  many  lines,  or  the  trust.  The  big 
concern  does  not  need  any  legislation  to  help  it  in  maintaining 
prices.  It  already  has  the  means  to  do  so  —  means  that  no 
one  can  deny.  Its  objection  to  price-standardization,  when 
objection  is  raised,  is  purely  selfish. 

Price-standardization  does  not  check  competition.  It 
will  rather  give  us  the  best  results  that  competition  can  offer. 
Price-maintenance  is  to  present-day  business  what  the  rule 
not  to  strike  below  the  belt  is  in  prize  fighting.  One  blow 
below  the  belt  may  put  the  best  fighter  in  the  world  on  the 
floor  in  a  moment  and  thus  end  the  struggle.  A  foul  blow 
in  business  competition,   such  as  unjustified  or  dishonest 


PRICE-MAINTENANCE  275 

price-cutting  has  shown  itself  to  be  in  several  cases,  might 
send  the  most  efficient  and  socially  useful  producer  into  a 
receivership.  The  naturally  weak  productive  or  distributive 
agent  deserves  no  special  protection  if  there  are  other  equally 
efficient  agencies  at  hand  to  perform  the  same  services.  On 
the  other  hand,  efficiency  cannot  be  measured  by  capitalistic 
power  alone,  particularly  in  the  distribution  of  goods.  The 
big  institution  should  not  be  allowed  to  have  peculiar,  artifi- 
cial or  legal  advantages  with  which  to  crush  its  less  powerful 
competitors,  either  directly  or  indirectly. 

Finally,  to  succeed,  the  standardized  price  must  be  fair 
to  the  consumer.  Price-maintenance,  therefore,  promotes 
the  square  deal  to  all  concerned  —  the  producer,  the  dis- 
tributor, and  the  consumer.  In  granting  the  privilege  of 
maintaining  prices  to  manufacturers,  we  shall  be  doing  only 
what  has  already  been  done  in  one  way  or  another  by  several 
of  the  European  countries.  We  shall  only  be  giving  to  the 
small  manufacturer  and  the  manufacturer  of  a  specialty  a 
right  that  many  large  concerns  can,  and  do  now  exercise 
without  question,  through  their  own  agencies,  chain  stores, 
or  selling  organizations. 

Bibliography 

The  best  source  of  information  concerning  the  development  of  the 
price-maintenance  question  is  Printers'  Ink.  There  have  been  hterally 
hundreds  of  allusions  to  the  subject  as  well  as  scores  of  articles  during 
the  last  five  or  six  years.  For  an  extended  list  of  these  articles  applica- 
tion should  be  made  to  the  publishers. 

Advertising  and  Selling  has  likewise  published  a  number  of  articles. 

Other  magazines  that  have  given  considerable  space  to  a  considera- 
tion of  the  question  are  the  following: 

Scientific  American 
Literary  Digest 
Ladies'  Home  Journal 
Harper's  Weekly 
Outlook 
Independent 


276  ECONOMICS  OF  RETAILING 

Collier's  Weekly 
World's  Work 
The  following  articles  not  found  in  the  above  seem  noteworthy : 

Miller,  Chas.  L.    The  Maintenance  of  Uniform  Resale  Prices.     Unit). 

of  Pa.  Law  Review,  Nov.,  1914. 
Hard,  W.    Better  Business.  Everybody's,  May,  1914. 
Rogers,   E.   S.     Predatory   Price-Cutting   as   Unfair   Trade.    Harvard 

Law  Review,  Dec,  1913. 

Books  dealing  with  the  price-maintenance  question : 

Cherington,  P.  T.    Advertising  as  a  Business  Force,  Ch.  XII,  "  Price 

Maintenance."     1913. 
Fernley,  T.  A.     Price  Maintenance.     1912. 
Mahin,   J.   L.    Advertising,    Selling  the   Consumer,   Ch.   XIX,   "  Price 

Maintenance."    1914. 
The  Selling  Problem.    Published  by  the  American  Sunday  Magazine, 

pp.  7-30. 

The  best  statements,  although  in  voluminous  form,  are  to  be  found  in 
the  public  record  of  the  hearings  before  the  Committee  on  Patents,  U.  S. 
House  of  Representatives,  1912-1913 ;  the  Judiciary  Committee  of  the 
House  of  Representatives,  1913-1914;  and  the  Committee  on  Interstate 
and  Foreign  Commerce,  House  of  Representatives  on  H.  R.  13,305, 
February  27,  1914,  to  January  9,  1915. 

The  American  Fair  Trade  League,  Fifth  Avenue  Building,  New 
York,  has  issued  several  pamphlets  and  reprints  setting  forth  the 
affirmative  side  of  the  question. 

An  otherwise  excellent  little  publication  from  the  offices  of  the 
American  Fair  Trade  League  misquotes  the  writer  on  pages  25  and  26. 
It  asserts  that  the  writer  stated  before  the  Judiciary  Committee,  March 
19,  1914,  that  "the  average  cost  of  doing  business  in  the  large  mail 
order  houses  is  from  27  to  30%  and  that  the  average  cost  of  the  large 
department  store  is  30%,  or  over."  Figures  were  given  by  the  writer 
for  mail  order  houses  of  from  16  to  26%  with  an  average  of  21  to  22%, 
not  including  the  cost  of  transportation  of  the  goods.  No  figures  were 
given  by  the  writer  on  department  store  costs  at  that  time. 


CHAPTER  XVI 

BUYING  AT  INSIDE  PRICES 

To  buy  more  goods  for  the  same  money,  or  to  buy  the 
same  goods  for  less,  seems  to  be  the  sole  aim  and  ambition  of 
many  retail  store  buyers.  The  fear  that  his  competitors  may 
be  able  to  buy  goods  for  less  than  he  must  pay  is  the  bete  noir 
of  the  average  retailer's  business  life.  Sellers  have  discrim- 
inated among  buyers,  have  sold  to  some  for  more  and  to 
others  for  less,  since  the  beginnings  of  trade.  Upon  such 
differentials  as  these  some  buyers  have  grown  rich  while 
others  have  starved. 

With  the  passing  of  the  age  of  hand  industry  and  the 
coming  of  mechanical  production  with  distribution  on  a  large 
scale,  the  keenness  of  competition  among  dealers  for  inside 
prices  has  increased  rather  than  diminished.  The  results 
from  such  discriminations  are  now  on  a  larger  scale  and 
more  disastrous  than  formerly,  and  therefore  more  obvious, 
hence  the  subject  has  lately  begun  to  take  definite  form  in 
the  minds  of  buyers  and  sellers  as  a  problerfi  demanding  some 
solution. 

The  main  reason  for  special  consideration  of  the  subject 
of  buying  at  inside  prices  at  this  time  is  that  during  the  last 
two  or  three  decades  several  types  of  distributive  institutions 
have  come  into  existence  whose  aim  has  been  to  buy  only  in 
depressed  markets,  to  deal  largely  in  goods  bought  in  spe- 
cial lots  or  jobs,  and  to  get  trade  by  selling  below  the  regular 
markets.  Many  such  concerns  have,  without  doubt,  been 
able  to  sell  some  goods  at  less  than  usual  market  prices,  but 

277 


278  ECONOMICS  OF  RETAILING 

because  of  the  still  lower  prices  at  which  they  bought,  were 
in  some  cases  able  to  make  profits  even  higher  than  usual. 
A  customary  method  of  disposing  of  such  purchases  has 
been  to  advertise  them  for  sale  at  cut  prices  in  such  a  way 
as  to  lead  the  average  consumer  to  believe  that  all  prices  in 
the  store  are  equally  low.  To  increase  this  illusion,  the 
goods  selected  for  sale  at  cut  prices  are  scattered  throughout 
the  store  in  many  departments.  To  use  an  expression  com- 
mon among  merchants,  the  regular  stock  is  ''  sweetened  '* 
by  the  intersprinkling  of  "  bargains."  Goods  purchased  in 
job  lots  or  otherwise  at  special  inside  prices  furnish  the  re- 
tailer with  the  opportunity  to  make  such  offerings  without 
loss  to  himself,  and  much  to  the  confusion  of  other  com- 
peting retailers.^ 

Discriminations  made  to  buyers  for  retail  stores  occur  in 
a  multitude  of  forms,  some  of  which  are  so  old  in  usage 
as  to  merit  being  called  customs  of  trade.  They  range  from 
such  smaller  concessions  as  entertainment  for  the  buyer 
while  he  is  in  the  market-city  —  dinners,  cigars,  theatre 
tickets,  and  so  on  —  to  deep  cuts  in  the  regular  prices  and 
special  discounts. 

Concessions  made  to  influence  buyers  in  a  personal  way 
have  been  considered  rather  disreputable  lately,  especially 
since  buyers  have  come  to  be  employees  rather  than  the 
owners  of  their  respective  stores.  Gifts,  goods  for  personal 
use  sold  at  cost  or  at  very  low  prices,  and  percentages,  or 
*'  rake-offs,"  on  all  purchases  made  for  the  store  are  now 
rightly  classed  as  species  of  graft,  and  all  such  practices  are 
frowned  upon  by  business  managers  generally.  But  the 
reasons  assigned  for  disfavor  are  generally  to  the  effect  that 
the  buyer  who  is  the  recipient  of  such  personal  tips  or  con- 

1  Of  course  not  all  stores  oflFering  goods  at  cut  prices  do  so  with  the  intent 
to  deceive  the  public  into  believing  that  all  goods  are  sold  at  equally  low  figures. 
The  cut  price  is  openly  used  by  many  concerns  to  draw  trade  to  the  store  in 
the  hope  that  the  customer  who  comes  for  the  cut-price  article  will  see  some- 
thing else  that  he  or  she  wants  and  thus  increase  the  store's  sales. 


BUYING  AT  INSIDE  PRICES  279 

cessions  cannot  serve  the  store  for  which  he  buys,  loyally 
and  efficiently.  The  buyer  is  still  expected  to  get  all  of  the 
price  reductions,  special  favors,  and  concessions  that  he  can 
for  his  employers,  but  must  not  permit  such  inside  practices 
to  redound  to  his  personal  advantage. 

One  of  the  most  common  price-discriminations  is  based 
upon  quantity  purchases.  The  larger  the  quantity  purchased 
the  lower  the  price  per  unit  is  set.  A  large  majority  of 
manufacturers  and  wholesalers  have  regular  scales  of  prices, 
as  for  example,  a  certain  price  per  dozen,  but  a  lower  pro 
rata  price  per  gross,  and  a  still  lower  figure  for  great  gross 
lots.  In  some  cases  this  quantity  price  is  given  in  actual 
figures  as  stated  above;  in  others,  it  is  given  in  the  form  of 
an  extra  percentage  off  in  the  trade  discounts.  For  instance, 
certain  lines  of  goods  handled  by  hardware  and  jewelry 
stores  in  small  lots  cost  40  per  cent  less  than  the  list,  the 
price  at  which  the  goods  generally  retail,  but  if  the  dealer 
buys  a  certain  quantity  he  is  given  40  and  10  per  cent  off 
the  list.  If  he  buys  a  still  larger  quantity  he  is  given  an- 
other 10  per  cent,  that  is,  trade  discounts  of  40  per  cent,  10 
per  cent,  and  10  per  cent  off  list. 

The  large  purchaser  sometimes  receives  favors  not  only 
from  the  manufacturer  or  wholesaler  with  whom  he  deals, 
but  also  from  the  salesman  representing  the  manufacturer  or 
wholesaler.  In  order  to  get  the  big  dealer's  order  in  the 
face  of  competition,  the  salesman  often  splits  his  own  com- 
mission with  the  dealer.  It  cannot  be  believed  that  this  is 
done  without  the  knowledge  if  not  actual  consent  of  the 
employers. 

In  a  similar  way,  it  is  complained  by  manufacturers  who 
desire  to  have  their  prices  maintained,  that  jobbers  split  their 
profits  with  the  big  retailers.  The  jobbers  contend,  how- 
ever, that  this  practice  must  be  followed  in  order  to  hold  the 
big  dealers'  trade,  that  if  the  jobbers  would  not  grant  the 


28o  ECONOMICS  OF  RETAILING 


1 


price  concessions  the  dealers  would  probably  go  to  the  man- 
ufacturers directly  and  get  as  much  as  they  now  get. 

Another  form  of  special  favor  to  certain  buyers  is  th< 
so-called  "  free  deal."  Concerns  that  use  this  device  frei 
quently  say  that  they  have  no  special  prices.  Everybody 
pays  the  same  price,  but  occasionally  goods  are  thrown 
free  with  other  goods  ordered  at  regular  prices.  The  dealer^ 
ordering  and  paying  for  five  cases  receives  one  case  in  ad- 
dition. The  dealer  ordering  ten  cases  may  receive  three 
cases  free,  and  so  on.  The  free  deals  are  not  always  made 
up  of  the  same  goods  as  those  ordered.  For  example,  soap 
concerns  frequently  give  supplies  of  various  toilet  goods, 
face  creams,  lotions,  and  so  on,  with  big  orders  for  laundry 
soap.  Patent-medicine  makers  include  other  remedies  with 
the  order  for  a  certain  kind.  In  some  cases  a  condition  is 
placed  upon  the  dealer  that  the  free  goods  are  to  be  used 
in  his  window  displays  for  a  week,  or  that  they  are  to  have 
a  prominent  place  in  the  show  cases.  Except  for  such  con- 
ditions which  constitute  contracts  for  services  to  be  per- 
formed by  the  dealer  for  the  wholesaler  or  producer,  the 
free-deal,  except  in  name,  is  essentially  the  same  as  a  quan- 
tity discount,  or  a  special  price.  Concerns  that  have  tried 
to  eliminate  the  former  have  generally  fallen  into  the  latter 
method;  and  the  giving  of  free  deals  is  as  common  as 
quantity  discounts. 

Another  form  of  special  price  given  to  some  buyers  is  a 
larger-than-usual  discount  for  cash.  The  seller  may  object, 
to  giving  a  regular  discount  off  his  established  price,  or  he 
may  not  be  willing  to  throw  in  any  free  goods,  and  may  still 
be  prevailed  upon  to  grant  an  additional  1  per  cent,  or  more, 
■for  prompt  payment.  Discounts  for  cash  run  from  1  per 
cent  up  to  7  per  cent  and  even  10  per  cent  if  paid  within 
ten  days,  with  terms  of  30,  60,  or  even  90  days  net.  If  the 
buyer  pays  within  10  days  he  may  take  advantage  of  the 


BUYING  AT  INSIDE  PRICES  281 

discount,  but  if  he  does  not  pay  then  he  may  let  his  bill  run 
for  the  remainder  of  the  term,  but  must  in  this  case  pay  the 
full  price.  The  cash  discount  became  customary  during  the 
Civil  War  and  the  years  following  when  long  credits,  such 
as  had  up  to  that  time  prevailed,  became  especially  risky. 
But  competition  among  sellers  was  keen.  They  did  not 
dare  give  long  credit  terms,  but  they  did  give  large  discounts 
for  prompt  payment.  The  cash  discount  has  continued  to 
the  present  as  a  premium  for  cash  down  or  within  a  short 
period,  such  as  10  days.  The  usual  discounts  given,  not  to 
mention  such  discounts  as  the  more  successful  buyers  are 
sometimes  able  to  get,  are  rather  high  when  compared  with 
usual  interest  rates.  For  example,  terms  of  2  per  cent  if 
paid  in  10  days,  or  net  if  paid  within  30  days,  terms  which 
are  very  common  and  not  considered  unreasonable  by  most 
business  men,  either  buyers  or  sellers,  mean  an  interest  rate 
of  36  per  cent  per  annum  on  money  that  the  buyer  advances 
within  the  10  days  rather  than  waiting  30  days  and  paying 
the  full  bill.  Terms  of  "  1  per  cent  if  paid  in  10  days,  net 
if  paid  within  30  days  "  yield  an  interest  of  18  per  cent 
when  computed  upon  an  annual  basis.  While  cash  discounts 
of  "  7  per  cent  off  if  paid  in  10  days,  60  days  extra,"  terms 
found  in  some  lines,  yield  a  saving  equalling  an  interest  rate 
of  42  per  cent.  Marketing  upon  the  basis  of  these  higher 
rates  of  discounts  is  either  abnormally  risky  or  else  makes 
a  very  unfair  discrimination  against  the  man  who  does  not 
have  the  cash  to  pay  at  once.  Nothing  indicates  the  present, 
unscientific  character  of  business  better  than  the  rule  of  these 
customary  discounts  for  cash  long  after  the  original  cause 
for  them  has  passed  away. 

The  buyer's  problem  is  not  complicated  so  much  by  the 
customary  rates  of  discounts,  however,  as  by  the  unusual  and 
irregular  terms  given  only  to  a  few.  Thus  when  the  prices 
have  been  fixed  upon  between  buyer  and  seller,  the  bargain- 


282  ECONOMICS  OF  RETAILING 

ing  for  terms  begins.  An  extra  1  per  cent,  as  we  have  seen, 
is  enough  to  make  all  the  difference  between  success  and  fail- 
ure among  closely  competing  concerns. 

There  are  several  variations  in  the  ways  of  granting 
favors  in  other  methods  than  by  raising  the  percentage  of  dis- 
count. In  some  cases  the  term  of  discount  is  lengthened  so 
that  instead  of  giving  the  buyer  only  10  days  in  which  to 
pay  his  bill  if  he  wishes  to  take  advantage  of  the  cash  dis- 
counts, he  is  sometimes  given  30  days,  60  days,  or  even 
more.  To  gloss  the  process  over  and  to  give  it  the  form  of 
regular  transactions,  the  device  of  forward  dating  is  em- 
ployed. Thus,  a  bill  of  goods  bought  February  1,  and  re- 
ceived within  a  week  may  be  dated  as  if  the  sale  took  place 
March  1,  or  April  1,  and  subject  to  the  terms  of  discount 
from  the  latter  rather  than  the  original  date.  In  such  cases 
the  buyer  gets  the  advantage  not  only  of  the  regular  cash 
discount,  but  also  of  the  use  of  his  money  for  one  or  two 
months  longer  than  he  otherwise  would.  We  have  here  the 
strange  spectacle  of  a  man  both  eating  and  having  his  cake 
at  the  same  time. 

Forward  dating  upon  a  somewhat  different  basis  and  for 
a  different  reason  is  common  in  many  lines  of  goods  that 
have  seasonal  sales,  such  as  clothing,  underwear,  hats,  and 
so  on.  Orders  from  retailers  are  taken  far  in  advance  of 
either  delivery  or  possibility  of  making  retail  sales.  To 
have  the  bills  mature  at  a  suitable  time,  they  are  usually 
dated  in  the  future  and  then  customary  terms  are  accorded 
the  buyer  from  the  future  date.  The  necessities  of  the  case 
cause  the  sellers  to  fix  the  time  of  payment  to  coincide  with 
the  time  of  receiving  the  goods,  and  the  forward-dating  de- 
vice has  been  utilized  to  make  this  possible.  No  objection 
can  be  offered  to  this  except  when  forward  or  extra  dating 
is  given  to  buyers  in  the  form  of  favors  or  special  discrim- 
inations. 


BUYING  AT  INSIDE  PRICES 


283 


It  is  impossible  to  state  how  much  the  practice  of  giving 
inside  prices  to  preferred  buyers  prevails.  Neither  those 
who  give  such  prices  nor  those  who  accept  them  are  willing 
as  a  rule  to  tell  about  them.  From  time  immemorial,  the 
prices  that  a  retail  concern  pays  for  its  goods  has  been  con- 
sidered a  matter  to  be  guarded  closely. 

The  secret  price-mark  for  retail  selling  has  given  way 
very  generally  to  the  one-price-to-all  policy,  a  policy  that  now 
is  held  in  great  public  esteem.  But  producers  and  whole- 
salers have  not  yet  gone  so  far,  with  a  few  notable  excep- 
tions, in  fixing  their  prices  when  selling  to  retailers.  If  a 
special  price  is  given  it  must  of  necessity  be  kept  secret,  or 
every  other  buyer  will  urge  his  rights  to  the  same  price. 
What  is  lost  on  selling  at  a  special  discount  to  one  buyer 
must  be  made  up  by  selling  at  higher  prices  to  other  buyers. 

As  indicated  above,  a  few  concerns  have  adopted  a  one- 
price-to-all  policy  in  selling  to  dealers.  Recent  news  items 
in  the  trade  press  indicate  that  the  Shredded  Wheat  Com- 
pany, Kellogg  Toasted  Corn  Flake  Company,  and  The  Welch 
Grape  Juice  Company  have  adopted  a  policy  of  selling  to 
all  dealers  at  one  price  regardless  of  quantity  or  other 
considerations.  Other  concerns  such  as  the  N.  K.  Fair- 
bank  Company,  The  Enoch  Morgan  and  Sons  Company, 
The  Eagle  Lye  Company,  The  Wildi  Evaporated  Milk  Com- 
pany, Swift  and  Company,  and  The  Crystal  Domino  Syrup 
Company  have  decided  to  give  no  more  free  deals. 

As  indicative  not  only  of  the  extent  of  quantity  discount 
and  other  special  price-making  devices,  but  of  the  fact  that 
men  of  business  are  beginning  to  question  the  outcome  of 
unrestricted  practice  in  these  lines,  a  symposium  on  the 
quantity-price  problem  in  a  recent  magazine  is  enlightening.^ 

Samuel  Cabot,  Inc.,  Boston,  wrote: 

"  It  is  notorious  that  the  quantity  discount  has  degen- 

2  Printers'  Ink,  April  2,   1914,  p.  64  flf. 


284  ECONOMICS  OF  RETAILING 

erated  into  a  special  favor  which  is  out  of  all  proportion  to 
the  saving  made  by  the  manufacturer  because  of  landing 
large  orders." 

R.  R.  More,  Vice-President  of  the  Diamond  Crystal 
Salt  Company,  stated: 

"  It  has  been  customary  for  the  large  buyer  to  demand, 
and  for  sellers  generally  to  concede,  a  lower  price  on  ac- 
count of  a  large  quantity.  There  is  perhaps  one  valid  excuse 
for  such  quantity  prices.     It  reduces  the  selling  expense." 

George  A.  Weinman,  of  Lord  &  Taylor's  Wholesale 
Department,  expressed  himself  as  follows : 

"At  one  time  there  was  a  general  practice  to  grade  the 
price  according  to  the  standing  of  the  customer,  and  where 
there  was  a  greater  risk,  it  was  natural  to  exact  a  large 
profit.     Special  discounts  seem  to  work  in  the  same  way." 

In  an  address  before  the  Chicago  Sales  Managers'  Asso- 
ciation held  in  Chicago,  November  29,  1913,  R.  Esau 
is  reported  to  have  stated  that  "  75  per  cent  or  more  of  the 
members  of  the  Chicago  Sales  Managers'  Association  seem 
to  be  of  the  opinion  that  quantity  does  rightfully  control 
price."  Other  speakers  at  the  same  meeting  opposed  it  in 
principle. 

Reviewing  the  writer's  testimony  before  the  Judiciary 
Committee  of  the  House  of  Representatives,  March  19, 1914, 
the  editor  of  the  New  York  Journal  of  Commerce  held  that 
"  quantity  discounts  breed  monopolies." 

It  is  obvious  that  the  special  or  inside-price  problem  is  a 
complicated  one.  It  has  many  angles  and  what  seems  true 
and  right  for  one  concern  or  even  for  an  entire  line  of  in- 
dustries may  not  be  right  for  another. 

The  main  arguments  in  favor  of  manufacturers  and 
wholesalers  making  price-discriminations  among  retailers 
may  be  grouped  under  three  heads,  viz. —  first,  that  the 
inside-price-giving  system  is  expedient;  second,  that  it  re- 


BUYING  AT  INSIDE  PRICES  285 

suits  in  certain  economies  to  the  seller;  and,  third,  that  it 
is  not  opposed  to  the  best  interests  of  the  public. 

Under  the  argument  of  expediency  it  is  held  that  quantity 
prices,  free  deals,  special  discounts,  and  other  concessions 
are  customary.  Dealers  expect  them  and  this  fact  makes  it 
necessary  for  the  seller  to  give  them  in  order  to  avoid  fric- 
tion with  the  distributors.  It  is  held  that  it  is  almost  im- 
possible for  a  new  product  to  break  into  the  retail  markets 
without  making  special  concessions,  especially  to  some  of 
the  larger  retailers,  and  that  reductions  thus  made  are  equiv- 
alent to  expenditures  for  advertising  or  for  other  special 
means  to  get  distribution.  There  is  no  article  so  good  that 
substitutes  for  it  cannot  be  procured  and  sold  to  the  public. 
In  competition  with  other  products  it  is  necessary  to  do,  not 
what  seems  to  be  the  fairest  thing  for  everybody,  but  what 
will  get  and  keep  a  market.  It  is  often  necessary  to  sub- 
sidize or  even  bribe  some  retailers  to  get  their  interest  and 
help  in  marketing  goods.  Having  secured  a  market  through 
a  few  dealers,  it  is  always  easier  to  place  goods  with  other 
dealers,  particularly  among  the  smaller  retailers. 

The  quantity  price  and  free  deal  are  held  to  be  expedient 
because  they  stimulate  buying.  This  gives  the  producer  a 
chance  to  make  more  goods,  and  as  the  volume  is  increased, 
in  some  cases,  the  costs  of  producing  each  unit  is  reduced; 
therefore  the  reductions  in  price  to  a  few  dealers  followed  by 
greater  consumption  of  the  goods,  may  result  in  a  greater  net 
profit  to  the  producer. 

The  quantity  price  is  an  easy,  and  in  some  cases,  the  only 
means  of  turning  goods  into  immediate  cash.  The  manu- 
facturer who  needs  funds  for  use  at  once,  may  find  it  more 
advantageous  to  sell  his  goods  at  less  than  regular  prices 
than  to  borrow  money  from  the  banks.  In  other  cases, 
changes  in  demand,  mistakes  in  production,  and  in  judgment 
of  what  there  is  market  for,  leave  the  producers  with  sur- 


286  ECONOMICS  O^  R^tAlLlNG 

plus  stocks  on  their  hands.  To  attempt  to  sell  these  goods  at 
regular  prices  would  be  folly.  The  sooner  they  are  dis- 
posed of  the  better.  To  sell  them  for  what  they  will  bring, 
often  at  greatly  reduced  prices,  is  the  only  remedy  against 
complete  loss. 

Thus  we  see  that  there  are  several  arguments  for  special 
price-making  based  on  expediency,  arguments  that  must  be 
considered  seriously.  Trade  naturally  follows  the  lines  of 
least  resistance  and  question  may  be  raised  as  to  whether 
such  lines  should  be  blocked  up  or  closed. 

Another  line  of  argument  used  by  those  who  favor  the 
giving  of  quantity  prices,  free  deals,  and  other  special  dis- 
counts is  that  such  discounts  are  usually  payments  for  serv- 
ices performed  by  the  buyer  for  the  seller.  The  buyer  who 
takes  a  large  lot  of  goods  off  the  hands  of  the  seller  saves 
for  the  latter  the  costs  of  storage,  interest  on  the  capital 
tied  up  in  the  goods,  insurance  from  loss,  damage,  and  de- 
preciation of  every  kind,  handling,  and  so  on,  expenses  that 
would  otherwise  have  to  be  incurred  if  sales  had  to  be  made 
in  small  lots.  Since  the  buyer  of  the  big  lot  saves  these 
items  for  the  seller,  why  should  he  not,  it  is  asked,  receive 
some  reduction  in  the  price  which  he  must  pay  commensurate 
with  those  savings? 

As  already  stated,  the  seller,  particularly  the  producer 
who  sells  direct  to  retailers,  frequently  gives  a  number  of 
articles  free,  or  as  a  premium,  with  an  order  for  goods  from 
the  retailer  at  regular  prices.  The  extra  or  "  free  goods," 
as  they  are  called,  are  usually  given  in  consideration  of  the 
retailer  performing  some  special  service  such  as  pushing  the 
line  whenever  possible,  recommending  it  to  his  customers  or 
giving  it  a  prominent  place  on  his  shelves  and  show  cases, 
where  it  will  be  seen  by  all  who  enter  the  store.  It  is  cus- 
tomary in  many  lines  for  the  seller  to  throw  in  an  extra 


BUYING  AT  INSIDE  PRICES  287 

dozen  to  be  used  in  a  window  display,  and  later  to  be  sold 
and  the  full  prices  pocketed  by  the  dealer. 

As  pointed  out  in  another  chapter,  window  space,  as  well 
as  other  store  space,  is  valuable.  The  producer  who  desires 
preferred  position  for  his  goods  either  in  the  windows  or  in 
the  store  simply  pays  for  the  privilege  in  much  the  same 
manner  as  advertisers  pay  more  for  preferred  space  in  news- 
papers and  magazines.  That  this  method  of  bargaining 
with  producers  of  goods  for  a  place  in  the  store,  if  fully  de- 
veloped, may  lead  to  new  problems  in  retailing,  it  is  easy  to 
see;  but  that  there  is  such  a  tendency  at  work  among  re- 
tailers to  apportion  their  store  space  to  goods  according  to 
their  profit  possibilities  is  obvious.  Retailers  must  be  paid 
for  the  services  that  they  perform,  and  the  remuneration 
may  take  the  form  either  of  cash,  or  of  extra  goods,  not 
"  free  goods."  For  example,  the  producer  of  toilet  soap 
may  pay  the  druggist  $6  in  cash,  or  give  $6  worth  of  goods 
for  the  use  of  a  display  window  for  a  week.  Such  bargains 
are  not  uncommon,  but  in  the  case  of  the  so-called  "  free 
deals,"  the  business  element  is  obscured  by  the  language  and 
methods  of  expressing  the  agreement.  To  illustrate,  the 
salesman  representing  the  producer  may  say  to  the  dealer, 
*'  As  a  personal  favor  to  you,  I  shall  have  my  company 
throw  in  an  extra  dozen  free  with  your  order.  Now, 
wouldn't  you  be  willing  to  make  up  a  good  window  display 
showing  our  goods  for  a  week?  "  As  a  ''  personal  favor  " 
to  the  salesman,  the  dealer  is  satisfied  with  the  offer,  and 
trims  a  window  for  a  week  with  that  company's  goods. 
Really  there  is  a  mutual  exchange  for  a  consideration,  but 
in  the  language  of  common  business,  the  extra  goods  thrown 
in  constitutes  a  "  free  deal." 

There  is  another  reason  urged  by  many  producers  for  a 
quantity  price.     If  the  opportunity  presents  itself  to  sell 


288  ECONOMICS  OF  RETAILING 

considerable  amounts  of  goods  in  advance  of  manufacture, 
the  producer  not  only  saves  the  usual  items  of  expense  al- 
ready enumerated,  viz. —  storage,  insurance,  costs  of  selling 
and  handling,  interest  on  the  money  invested,  and  so  on,  but 
he  is  also  assured  of  a  market  for  his  goods  whatever  may 
happen.  In  some  cases  the  sales  of  quantities  permit  the 
producer  to  use  his  plant  to  its  full  capacity  all  of  the  time, 
not  only  during  busy  seasons  but  during  dull  seasons  as  well.  i 
In  cases  like  these  the  manufacturer  is  insured  against  losses  \ 
due  to  changes  in  seasonal  demand.  Certainly,  it  is  claimed, 
a  quantity  price  is  justifiable  here. 

Looking  at  the  matter  from  the  standpoint  of  public 
policy,  those  who  favor  quantity  prices  and  price-discrimi- 
nation urge  that  a  single  price  to  all  is  inequitable.  Such  a 
price,  for  instance,  will  make  no  distinctions  because  of  dif- 
ferences in  transportation  and  other  costs.  Some  of  them 
go  still  further  and  claim  that  the  use  to  which  the  goods 
are  to  be  put  should  be  considered.  If  to  be  used  by  an  ulti- 
mate consumer,  the  price  should  be  different  than  what  it 
should  be  if  it  were  to  be  used  by  another  producer.  Prices 
to  others  in  the  same  trade  or  profession  should  not  be  so 
high  as  to  the  general  public.  These  views  represent  old 
customs  among  business  people.  While  probably  not  as 
strong  now  as  they  once  were,  they  are  still  prevalent. 

There  is  also  a  feeling  among  producers  that  distributors 
who  have  been  in  the  business  a  long  time  should  have  bigger 
discounts  than  newer  firms.  There  may  be  some  reason  for 
this,  based  on  difference  in  risk,  but  the  risk  factor  alone  will 
not  account  for  "  preferred  lists  "  of  dealers,  "  starred  deal- 
ers," and  other  classifications  sometimes  made  in  whole- 
salers' and  producers'  account  books.  Aside  from  risk  in 
dealing  with  a  new  firm,  there  is  a  sort  of  customary  way  of 
thinking  that  the  retailer  who  has  served  faithfully  for  years 
is  entitled  to  a  little  bigger  "  rake-off,"  not  because  he  buys 


BUYING  AT  INSIDE  PRICES  289 

larger  quantities,  but  just  because  he  has  been  in  the  busi- 
ness so  long.  This  explanation  reminds  one  of  the  explana- 
tion sometimes  given  by  employers  when  they  pay  a  much 
larger  salary  to  an  old  employee  than  to  a  younger  one  who 
may  be  much  more  efficient  in  every  way  than  the  older  one. 
As  a  matter  of  fact,  such  discriminations  do  exist,  but  to 
what  extent  the  writer  cannot  say. 

Some  people  argue  that  the  quantity-discount  system 
should  be  used  much  more  than  it  is  used  for  the  reason  that 
the  competition  ensuing  would  eliminate  a  large  number  of 
the  smaller  stores.  This  argument  is  based  on  the  assump- 
tion that  there  are  too  many  stores,  and  that  any  reduction 
of  the  number  would  result  in  savings  to  the  remainder,  and 
that  through  the  competition  of  the  remainder  those  savings 
would  ultimately  go  to  the  public.  If  this  assumption  is 
correct,  there  is  some  argument  for  quantity  prices  along 
these  lines.  But  that  this  assumption  is  correct,  although 
commonly  believed  by  many  people,  is  open  to  question.  It 
is  not  at  all  unlikely  that  the  costs  of  distribution,  taking  all 
things  into  consideration,  would  be  higher  to  the  public  if 
there  were  fewer  retailers.  This  question  is  considered  else- 
where. It  may  be  pointed  out  in  passing  that  if  this  assump- 
tion is  not  true  then  the  argument  for  quantity  prices  fails 
entirely. 

Those  who  oppose  the  quantity-discount,  free-deal,  and 
other  special  price-making  policies  also  urge  expediency, 
economy,  and  public  welfare.  But  their  observations  of 
actual  business  and  their  conclusions  therefrom  are  so  dif- 
ferent from  those  already  cited,  that  reconciliation  is  prac- 
tically impossible.  One  must  choose  from  among  them  those 
which  seem  to  be  most  nearly  correct. 

It  seems  clear  that  a  one-price  policy  is  highly  expedient 
for  certain  classes  of  producers,  and  that  far-sighted  business 
managership  will  lead  to  its  adoption.     For  example,  a  con- 


290 


ECONOMICS  OF  RETAILING 


cern  that  is  well  established,  whose  product  is  well  known  to 
the  consuming  public,  and  which  does  not  need  skilful  sales- 
manship to  move  it  over  the  retailers'  counters,  is  in  position 
to  shut  down  on  the  more  extensive  forms  of  quantity  or 
special  discounts.  If  the  product  has  a  very  wide  distribu- 
tion, most  of  it,  say  from  75  to  90  per  cent  of  it,  is  probably 
distributed  by  small  stores  rather  than  large  ones.  But  the 
few  large  stores  are  the  only  ones  which  can  as  a  rule  profit- 
ably take  advantage  of  quantity  prices  and  quantity  dis- 
counts. These  few  large  stores  can,  if  they  feel  so  inclined, 
cause  much  troublesome  competition.  The  lower  prices  at 
which  they  buy  may  enable  them  to  undersell  the  smaller 
competitors  without  loss  to  themselves.  This  situation 
creates  a  feeling  of  antagonism  in  the  small  dealers'  minds 
towards  this  line  of  goods,  an  antagonism  that  may  best 
be  removed  by  putting  all  dealers,  both  big  and  small,  on  the 
same  price  basis. 

Manufacturers  of  perishable  goods,  or  goods  that  de- 
preciate rapidly  with  the  passage  of  time,  must  seek  to  get 
their  product  into  the  hands  of  the  consumers  as  soon  as 
possible  after  making.  No  other  policy  will  insure  the 
preservation  of  a  favorable  reputation  for  their  brands. 
Under  such  circumstances  it  is  dangerous  to  sell-  to  any 
dealer  any  greater  quantity  than  is  necessary  to  keep  him 
well  stocked.  Quantity  discounts  and  free  deals  operate 
against  this  policy,  hence  are  not  only  unnecessary  but  may 
be  harmful  to  the  producer  in  the  long  run.  Breakfast 
foods  are  good  examples  of  this  class  of  goods  and  it  is 
notable  that  the  brands  that  have  been  sold  under  the  one- 
price  policy  have  been  the  most  successful.  It  is  also 
notable  that  one  of  the  first,  if  not  the  first,  big  manufactur- 
ing concern  in  this  country  with  a  national  distribution  to 
sell  on  a  one-price-to-all  policy  was  a  cereal  breakfast-food 
maker. 


1BUYING  AT  INSIDE  PRICES  291 

There  is  a  danger  in  giving  quantity  discounts  that  all 
producers  who  employ  this  policy  must  combat:  The  giv- 
ing of  quantity  and  special  discounts  leads  to  the  tempta- 
tion to  discriminate  more  and  more  among  buyers.  It  is 
difficult  to  draw  the  line  between  what  may  be  done  safely 
and  what  may  not  be  done.  In  a  recent  article,  appearing 
in  a  number  of  trade  papers,  signed  by  Edgar  T.  Welch, 
secretary-treasurer  of  the  Welch  Grape  Juice  Company, 
there  appears  this  paragraph : 

**  Suppose  a  retailer  could  secure  the  lowest  price  on 
fifty  cases,  what  should  we  say  to  retailers  using  or  willing 
to  use  one  hundred  cases  ?  And  there  are  still  larger  stores 
or  combinations  of  stores  that  can  use  five  hundred,  one 
thousand  or  more  cases.  Why  should  we  stop  with  fifty 
cases?  If  the  quantity-price  idea  were  carried  to  its  logical 
conclusion,  there  would  be  a  price  to  fit  every  quantity."  ^ 

It  appears  that  under  pressure  from  competing  buyers 
some  manufacturers  do  give  way  more  and  more,  until, 
finally,  to  save  for  themselves  a  profit  from  their  business, 
either  the  majority  of  the  buyers  must  be  forced  to  pay 
more,  or  the  quality  of  the  product  must  be  reduced  and 
production  cheapened.  It  is  a  current  observation  that 
price  declines  are  very  likely  to  be  followed  by  quality 
declines,  the  only  exceptions  being  first,  in  cases  where  the 
product  is  already  at  as  low  a  quality  level  as  will  permit 
it  to  be  marketed,  and,  second,  where  the  producer's  plant 
is  equipped  to  make  only  a  certain  grade.  To  change  to  a 
lower  quality  would  in  the  latter  case  probably  be  uneco- 
nomical. Quantity  discounts  and  price  concessions,  accord- 
ing to  this  view,  have  unsettling  influences  that  are  likely  to 
hurt  the  sellers  as  well  as  the  buyers  in  the  long  run. 

The  quantity  discount  is  held  to  be  uneconomical  be- 
cause, as  it  is  claimed,  it  causes  a  number  of  wastes.     In 

3  Twin  City  Commercial  Bulletin,  Feb.,  X914, 


292  ECONOMICS  OF  RETAILING 

competition  with  big  buyers,  small  dealers  are  forced  to  buy 
more  than  they  otherwise  should,  or  would,  in  order  to  get 
as  low  prices  as  their  larger  competitors.  Large  purchases 
made  by  small  dealers  tend  to  produce  several  bad  effects. 
In  the  first  place,  such  purchases  tie  up  large  parts  of  the 
dealers'  capital  that  might  otherwise  be  used  elsewhere. 
The  large  stock  of  goods  obtained  means  increased  expendi- 
tures in  taxes,  insurance,  storage  or  rent,  and  additional 
handling.  The  quantity  of  goods  on  hand  prevents  the 
dealer  from  keeping  a  wider  variety  of  goods.  These  items 
of  expense,  however,  are  to  be  expected  as  a  part  of  a 
quantity-price  proposition,  and  may  be  considered  as  nor- 
mal. The  evils  arise  from  the  fact  that  the  retailer  may 
not  be  able  to  sell  his  purchases  soon  enough.  Many  goods 
begin  to  depreciate,  particularly  if  the  retailer  does  not  have 
the  right  kind  of  storage  place,  and  most  of  them  have  not. 
Groceries  become  stale,  most  goods  lose  their  appearance  of 
freshness,  some  go  out  of  fashion,  large  stocks  are  much 
more  subject  to  depredations  of  vermin,  and  so  on.  As  a 
consequence  the  retailer  is  often  forced  to  unload  much  of 
his  quantity  goods  at  cut  prices  or  even  at  a  loss.  Unex- 
pected needs  for  capital  may  force  him  to  reduce  prices  to 
move  his  goods  even  when  they  have  not  depreciated.  A 
large  stock  of  goods  of  one  kind  on  hand,  moving  slowly, 
has  a  peculiar  psychological  effect  on  the  average  retailer. 
As  he  sees  the  big  supply  of  goods  from  day  to  day  and 
notes  how  slowly  it  sells,  he  is  likely  to  begin  by  wishing  he 
were  rid  of  it;  later  the  wish  becomes  a  fear  that  he  will 
lose  on  it,  and  often  he  stampedes  himself  into  selling  it  all 
off  at  deep  cuts  in  prices. 

Whatever  the  cause,  the  price-cutting  results  in  a  reduc- 
tion of  the  market  value  of  the  goods  in  the  minds  of  con- 
sumers that  is  very  hard  to  build  up  to  higher  levels  again. 
The  same  goods  when  offered  at  the  regular  prices  are 


BUYING  AT  INSIDE  PRICES  293 


taken  very  much  more  reluctantly  than  before,  and  substi- 
tutes are  readily  accepted.  Thus  the  retailer's  market  for 
that  particular  article  is  shattered  and  the  manufacturer  is 
hurt  still  more.  By  his  quantity-discount  or  free-deal 
policy,  the  manufacturer  not  only  hurts  himself  for  future 
sales,  but  also  hurts  a  number  of  retailers,  while  the  benefit 
to  consumers  through  the  price  reductions  are  but  tempo- 
rary. 

Because  of  the  length  of  time  a  large  quantity  of  goods 
must  stay  on  a  dealer's  shelves  before  moving,  and  because 
of  the  hundred  and  one  possibilities  of  depreciation  and 
damage,  a  manufacturer's  guarantee  to  the  consumer  is 
practically  impossible  if  quantity-price  policies  are  pursued. 
The  relations  of  the  producer  to  the  consumer  are  cut  off 
by  the  quantity  deal.  The  responsibility  of  the  producer 
is  reduced  and  his  purpose  becomes  more  clearly  to  make 
goods  to  sell  rather  than  for  consumption.  Of  this  class 
of  business  we  have  had  plenty  of  evidence  in  the  form  of 
adulterations,  misbrandings,  and  imitations.  It  would 
seem  that  the  consumer  would  derive  most  benefit  when 
knowing  who  the  producer  is  and  what  are  his  claims  for 
his  goods.  In  other  words  the  consumer  must  hold  him 
responsible  for  his  product.  The  quantity  discount  is 
therefore  more  generally  associated  with  private  brands  and 
unbranded  and  unstandardized  goods. 

Another  argument  against  the  quantity-discount,  free- 
deal,  and  special-discount  policies  is  that  every  sale  to  a  re- 
tailer becomes  a  dicker.  But  the  retailer  and  his  suppliers 
tend  to  concentrate  their  attention  on  price  rather  than 
qualities  suited  to  thie  community  in  which  the  retailer  lives. 
Since  sales  must  be  made  by  a  bargaining  or  higgling 
process,  economical  short  cuts  in  distributing  goods  become 
impossible.  The  only  method  that  will  work  in  getting 
orders  from  retailers  who  are  accustomed  to  getting  spe- 


294  ECONOMICS  OF  RETAILING 

cial  inside  prices  is  to  see  them  personally.  The  present 
costly  method  of  sending  out  commercial  travelers,  or  the 
more  expensive  method  of  retailers  coming  to  market  peri- 
odically, must  continue  indefinitely,  whereas,  under  a  uni- 
form price  system,  dealers  may  order  by  mail  or  telegraph 
and  know  that  they  will  receive  as  low  prices  and  as  many 
favors  as  any  other  dealers.  Thus,  it  is  claimed,  that  the 
quantity-price  and  special-discount  policies  stand  in  opposi- 
tion to  any  progress  in  the  direction  of  more  economical 
distribution.  They  put  a  premium  upon  clever  bargaining, 
subtle  deceit,  and  personal  influence,  rather  than  upon  busi- 
ness above  board  with  equal  opportunities  for  all. 

From  the  standpoint  of  public  policy  the  quantity  dis- 
count and  other  like  price  concessions  have  not  received  the 
study  that  should  be  given  to  them.  We  have  seen  the 
diversity  of  interests  and  views  both  for  and  against  these 
policies  from  the  standpoint  of  private  business.  Certainly 
the  ultimate  consumers  have  some  interests  that  need  to  be 
conserved  and  presented  in  such  discussions.  Very  little 
attention  has  been  given  to  these  problems  by  economists  or 
by  men  in  public  life.  Very  few  facts  have  been  gathered 
by  anyone.  Much  must  be  done  in  the  way  of  investiga- 
tion before  safe  conclusions  can  be  drawn.  What  follows 
is  to  be  considered  as  a  tentative  point  of  view  rather  than 
a  final  analysis. 

In  the  problem  of  quantity  prices  and  special  discounts, 
as  in  most  other  business  problems,  the  public  has  two  in- 
terests, viz.,  to  get  goods  at  the  lowest  possible  prices  con- 
sistent with  the  welfare  of  all  concerned,  and  to  see  that 
fairness  prevails  among  competitors  in  the  production  and 
distribution  of  goods.  Every  business  policy  must  be  tested 
by  these  two  principles. 

It  has  been  shown  that  the  quantity  discounts,  free  deals, 
and  special  discounts  of  various  kinds  are  generally  given 


BUYING  AT  INSIDE  PRICES  295 

to  the  big  distributors  rather  than  to  the  small.  We  have 
seen  that,  in  some  lines  at  least,  purchasing  in  large  quanti- 
ties does  result  in  savings  to  the  producer,  and  that  the  buyer 
shares  in  such  savings.  In  so  far  as  the  quantity  discount 
merely  covers  such  savings,  there  can  be  little  objection.  In 
such  cases,  storage,  insurance,  interest  on  the  money  in- 
vested in  the  goods,  handling,  selling  in  small  lots  and  other 
costs  are  assumed  by  the  buyer  and  must  normally  be  met 
by  him  rather  than  the  producer.  Discrimination  among 
buyers  based  merely  on  these  items  cannot  be  called  unfair. 
Assuming  that  the  ordinary  costs  of  conducting  retailing 
business  are  the  same  in  both  large  and  small  establishments, 
any  discounts  that  the  big  store  buyer  may  get  that  simply 
cover  the  savings  to  the  manufacturer  in  storage,  insurance, 
handling,  interest,  and  so  on,  will  not  enable  the  big  store 
to  sell  the  goods  to  consumers  for  less  than  the  small  store 
without  loss.  By  taking  over  the  large  quantity,  the  big 
store  simply  undertakes  to  do  its  own  storing,  insuring  and 
handling,  work  for  which  it  must  be  paid;  hence  the  result 
to  the  consumer  will  be  approximately  the  same,  whether 
the  producer  or  the  big  dealer  performs  these  functions.  In 
other  words,  a  quantity  discount  that  merely  covers  the 
savings  to  the  seller  will  not  permit  sales  to  consumers  at 
less  than  regular  prices,  nor  can  this  be  interpreted  as  caus- 
ing unfair  competition  among  dealers. 

The  quantity  discount  or  price  concession  that  does  make 
a  difference  to  the  public  is  one  that  goes  much  farther  than 
the  case  just  outlined.  It  seems  to  be  customary  in  some 
lines  and  for  some  producers  and  wholesalers  to  grant  dis- 
counts and  prices  to  a  few  dealers  that  cannot  be  justified 
by  any  economic  savings.  It  is  to  these  that  the  term  inside 
prices  may  be  applied,  and  it  is  this  form  of  quantity  dis- 
count or  price  concession  that  must  be  subjected  to 
scrutiny. 


296  ECONOMICS  OF  RETAILING 

In  the  first  place,  such  discriminations  in  price  constitute 
a  recognition  of  capital  rather  than  ability.  As  pointed 
out  in  another  chapter,  bigness  in  a  retail  store  is  no  guar- 
antee of  lower  costs  of  doing  business.  Such,  concessions 
mean  encouragement  to  the  big  store  as  against  the  small 
store,  and  have  no  necessary  connection  with  efficiency  of 
distribution.  The  store  that  receives  the  concessions  does 
not  necessarily  transfer  any  part  of  them  to  the  public  in 
the  form  of  lower  prices.  On  the  contrary,  prices  are  cut 
only  to  draw  trade,  and  only  enough  and  on  such  articles  as 
will  draw  the  trade.  Price-cutting  as  usually  carried  on 
does  not  benefit  anyone  to  any  considerable  extent.  The 
purpose  of  price-cutting  must  be  achieved  or  prices  will  not 
be  cut.  With  the  exception  of  such  cases  as  have  already 
been  referred  to,  when  goods  must  be  unloaded  by  the 
retailer,  the  deficits  from  cut  prices  must  be  made  up  by 
sales  of  other  goods  where  prices  are  not  cut.  Thus,  the 
cut  price  is  simply  a  device  for  stimulating  buying  among 
consumers,  or  drawing  trade  that  would  otherwise  go  to 
other  stores. 

The  producer  who  discriminates  in  his  price-making  in 
favor  of  the  big  distributor  either  tries  to  recoup  his  losses 
on  his  big  sales  by  raising  the  price  on  his  sales  in  small 
lots,  thus  making  the  discrimination  still  wider,  or  by  seek- 
ing to  economize  in  his  productive  departments.  Some- 
times both  of  these  methods  are  operated.  In  the  course 
of  the  development  of  some  industries,  improvements  lead- 
ing to  lower  costs  of  production  are  introduced,  but  in  so 
far  as  these  economies  are  passed  on  to  the  distributors, 
the  larger  purchasers  and  those  on  the  preferred  lists  are 
likely  to  get  the  first,  if  not  all,  of  the  advantages,  while  the 
smaller  dealers  stay  on  the  same  price  levels  as  before. 

Small  dealers  recognize  their  inability  to  compete  in 
buying  with  the  more  powerful  and  larger  concerns,  hence 


BUYING  AT  INSIDE  PRICES  297 

there  is  constant  friction  and  dissatisfaction  in  every  line 
in  which  the  inside  price-giving  policy  prevails.  It  is  recog- 
nized that  the  chief  strength  of  many  of  the  larger  retailing 
institutions  depends  almost  entirely  upon  buying  some  of 
their  goods,  at  least,  at  inside  prices.  It  is  only  natural, 
therefore,  that  retailers  should  combine  in  buying  associa- 
tions, exchanges,  or  pools,  co-operative  chain  stores,  and 
establish  so-called  trade  relations  committees  in  their 
national  associations.  By  their  united  power  they  are  able 
to  command  as  low  prices  as  the  big  retail  stores.  Compe- 
tition then  ensues  between  the  big  combinations  for  better 
prices,  and  so  the  contest  grows  ever  keener. 

Price-discrimination  leads  to  the  development  of  large- 
scale-buying  concerns  on  the  one  hand,  and  to  the  elimina- 
tion of  the  small  independent  retailers  as  such  on  the  other. 
In  distribution,  as  in  production,  price-discrimination  tends 
towards  consolidations,  and  these  in  turn  breed  still  greater 
combinations.  There  are  difficulties  in  the  way  of  forming 
monopolistic  combinations  in  the  retail  business  that  do  not 
exist  in  production,  but  the  retailing  trust  is  not  an  impossi- 
bility. In  any  case,  there  seems  to  be  a  decided  tendency 
towards  larger  organizations.  This  raises  the  question 
whether  the  small  independent  type  of  retailer  or  the  larger 
concern  can  serve  the  public  best;  and  upon  one's  answer 
to  that  question  will  depend  one's  conclusion  as  to  whether 
the  movement  towards  consolidation  is  a  good  or  a  bad 
thing. 

In  conclusion,  it  may  be  stated  that  certain  forms  of 
quantity  discounts  and  other  price  concessions  seem  to  be 
justifiable,  especially  when  granted  in  return  for  services 
actually  performed  by  the  buyer  for  the  seller.  Certain  it 
is  that  under  present  circumstances  much  of  such  discrim- 
ination is  considered  expedient  even  where  its  possible  evils 
are  clearly  discerned.     Neither  the  buyers,  as  such,  nor  the 


298  ECONOMICS  OF  RETAILING 

sellers  can  remedy  the  matter.  Both  are  forced  by  circum- 
stances to  continue  as  they  have  in  the  past  unless  prevented 
from  so  doing  by  society.  The  big  buyer  seems  to  be  the 
starting  point  for  most  of  the  difficulty.  With  cash  in  hand 
and  a  demand  for  large  amounts  of  goods,  he  has  a  power 
in  the  market  that  compels  sellers  to  discriminate  in  his 
favor.  The  big  order  is  a  big  temptation  to  many  pro- 
ducers and  competition  does  the  rest. 

The  situation  is  very  similar  to  that  of  the  railroads 
and  the  big  shippers  before  the  Interstate  Commerce  Com- 
mission was  created  and  clothed  with  enough  power  to  pre- 
vent unfair  discrimination  in  favor  of  the  latter  as  against 
the  great  mass  of  small  shippers.  Every  argument  used 
in  the  public  discussion  of  that  question  is  applicable  to  this. 
That  the  railroads  have  been  legally  defined  and  set  apart 
under  the  term  "  public  utilities  "  does  not  alter  the  merits 
of  the  case  in  the  least.  There  may  be  a  difference  in 
degree  of  public  interest  as  between  transportation  and  the 
distribution  of  goods,  but  even  this  is  open  to  question. 
Certainly  the  latter  affects  as  many  if  not  more  people,  and 
more  money  is  involved.  It  does  not  seem  unlikely  that  the 
government  will  some  day  have  to  take  upon  itself  the 
regulation  of  this  great  problem. 

There  is  something  about  this  question  of  inside  prices 
that  suggests  unfairness.  It  is  as  if  it  were  possible  for  a 
man  to  buy  postage  stamps  in  large  quantities  at  reduced 
rates,  or  as  if  reductions  should  be  made  in  a  rich  man's 
taxes  just  because  he  pays  a  large  amount.  As  long  as 
such  price-making  is  permitted,  dealers  can  hardly  be  blamed 
for  seeking  them,  and  if  the  small  dealer  cannot  buy  inde- 
pendently at  prices  that  will  permit  him  to  compete  suc- 
cessfully with  the  large  dealer,  we  must  not  be  surprised  to 
see  him  unite  with  his  fellows  into  combinations,  either 
in  the  form  of  chain  stores  under  corporate  control,  or  in 


I 


BUYING  AT  INSIDE  PRICES 


299 


co-operative  organizations.  What  this  movement  v\^ill  bring 
with  it  no  one  can  foresee,  but  if  one  may  judge  from 
what  has  already  occurred  in  some  industries,  such  as  oil, 
tobacco,  sugar,  and  steel  —  industries  in  which  price-dis- 
criminations led  to  larger  and  larger  units  —  the  public 
may  well  begin  to  take  account  of  what  is  going  on  and 
prevent,  if  possible,  the  development  of  tendencies  that  may 
later  have  to  be  combated,  as  the  country  is  now  compelled 
to  combat  the  big  industrial  trusts.  As  matters  now  stand, 
the  inside-price  problem  is  the  most  disturbing  element  in 
business.  More  of  the  evils  of  unfair  trade  can  be  traced 
to  this  as  a  cause  than  to  any  other  single  item. 


CHAPTER  XVII 

THE  FAILURE  RATE  IN  THE  RETAIL  BUSINESS 

One  of  the  best  means  of  obtaining  a  clear  idea  of  the 
physical  troubles  of  humanity  is  to  study  the  mortality  rate. 
From  the  death  tables  one  may  find  something  concerning 
the  relative  importance  of  the  causes  of  death,  and  from  the 
study  of  these  causes,  scientists  and  physicians  have  been 
able  to  find  remedies  and  thus  reduce  mortality.  In  the 
same  way  a  study  of  the  failure  statistics  for  retail  stores 
will  reveal  not  only  the  direct  causes  of  failure,  but  may 
also  lead  to  the  discovery  of  methods  of  reducing  the  failure 
rate. 

Failure  in  the  retail  business,  as  understood  here,  does 
not  necessarily,  nor  even  usually,  imply  bankruptcy  in  the 
legal  sense.  It  simply  means  discontinuance  of  a  business 
because  of  inability  to  conduct  it  so  as  to  make  it  yield  at 
least  a  fair  wage  to  the  manager  and  a  fair  rate  of  interest 
on  the  capital  invested.  By  a  fair  wage  is  meant  such  a 
wage  as  the  manager  could  command  in  employment  else- 
where, and  by  fair  rate  of  interest  is  meant  the  customary 
or  market  rate.  The  commonest  type  of  failure  in  the 
retail  business  is  where  the  manager  of  a  store  finds  that 
he  is  "  losing  money,"  that  he  is  meeting  expenses  out  of 
capital  and  not  out  of  earnings,  and  that  the  business  is 
going  backward  with  no  hope  of  recovery.  Sometimes  it  is 
discovered  that  a  business  cannot  be  made  to  pay  and  the 
decision  to  get  out  from  under  it  is  quickly  made.  In  other 
cases,  the  final  move  is  not  made  until  the  dealer's  original 

300 


THE  FAILURE  RATE 


301 


capital  is  almost  if  not  entirely  gone.  Occasionally  the 
loss  involves  not  only  the  dealer's  capital  but  also  a  part  of 
the  funds  loaned  him  in  the  form  of  merchandise  or  other- 
wise by  his  creditors.  In  any  case,  the  store  is  finally  sold 
or  disposed  of,  and  its  manager  sets  out  to  embark  in  some- 
thing else. 

The  usual  failure  statistics  issued  by  such  concerns  as 
Dun  and  Bradstreet  comprise  only  failures  in  which 
creditors  lose  something.  No  account  is  taken  of  that 
very  large  class  in  which  the  dealers  are  able  to  satisfy 
their  creditors,  but  lose  part  or  all  of  their  own  substance.^ 
The  proportion  of  bankruptcies  and  failures  of  the  classes 
enumerated  by  Dun  and  Bradstreet  must  clearly  be  very 
small,  and,  consequently,  such  figures,  if  taken  to  show  the 
actual  failure  rate  in  business,  are  misleading. 

Recently,  an  article  was  published  and  widely  quoted, 
calling  attention  to  the  low  proportion  of  failures  to  the 
total  numbers  of  people  in  business  as  shown  by  Dun's 
tables.  Upon  this  as  a  basis  the  estimates  of  a  very  much 
higher  failure  rate  made  by  many  experienced  business  men 
are  criticized.  That  the  word  "  failure "  is  used  in  an 
entirely  different  sense  in  each  case  is  completely  over- 
looked. ^ 

So  far  as  the  writer  has  been  able  to  learn,  one  of  the 
first  public  statements  in  this  country  concerning  the  failure 
rate  among  merchants  was  made  in  1840  by  General  Henry 
A.  S.  Dearborn,  then  collector  of  the  port  of  Boston,  in 
an  address  before  the  members  of  the  Massachusetts  Legis- 
lature.    His  statement  was  as  follows: 

"  After  an  extensive  acquaintance  with  business  men, 
and  having  long  been  an  attentive  observer  of  the  course 
of  events  in  the  mercantile  community,  I  am  satisfied  that, 

1  Bradstreet's  "  Failure   Statistics  —  Their   Meaning  and  Utility,"  1910,  p.   5. 

2  Printers'  Ink,  March  5,  1914,  p.  101. 


302  ECONOMICS  OF  RETAILING 

among  one  hundred  merchants  and  traders,  not  more  than 
three  in  this  city  ever  acquire  independence.  It  was  with 
great  distrust  that  I  came  to  this  conclusion;  but,  after  con- 
sulting with  an  experienced  merchant,  he  fully  admitted 
its  truth."  3 

This  statement  was  questioned  and  doubted  by  other 
men  in  public  life  in  Boston  at  that  time,  and  caused  other 
investigations  to  be  made.  The  results  of  these,  though  in 
most  cases  not  so  definite,  served  to  corroborate  General 
Dearborn's  testimony,  at  least  to  the  extent  that  very  few  of 
those  who  entered  the  merchandising  business  were  able  to 
make  a  success  of  it.^ 

A  generation  later,  a  study  was  made  among  the  mer- 
chants of  Worcester,  Massachusetts.  It  was  found  that 
out  of  56  firms  doing  business  in  that  city  in  1845,  one-fifth 
passed  out  within  five  years,  two-fifths  within  ten  years, 
and  three-fifths  within  fifteen  years.  Following  this  state- 
ment an  estimate  was  made  for  the  retail  business  in  gen- 
eral, to  the  effect  that,  out  of  all  who  begin  as  merchants,  at 
least  25  per  cent  fail  within  five  years,  50  per  cent  fail 
within  ten  years,  and  66%  per  cent  fail  within  fifteen 
years.^ 

In  his  testimony  before  the  Industrial  Commission  in 
1900,  John  Wanamaker  stated  that  only  about  4  per  cent 
of  all  who  embark  in  mercantile  business  succeed.  At  the 
same  time  he  quoted  A.  T.  Stewart,  a  former  great  retailer 
and  wholesaler  of  New  York  City,  who  used  to  claim  that 
only  2  per  cent  succeeded.^ 

Leroy  Beaulieu,  a  great  French  economist,  estimated 
that  in  France,  out  of  a  hundred  new  businesses,  twenty 
fail  soon  after  starting,  fifty  to  sixty  vegetate,  or  are  able 

Z  Hunt's  Merchants'   Magazine,   15:475. 

4  Freedley,    E.    T.,    "  Common    Sense  in   Business,"   1879,    pp.    185-7. 

5  Nation,   April    12,    1888. 

6  Industrial    Commission,   Vol.    VII,   p.    452. 


THE  FAILURE  RATE 


303 


simply  to  hold  their  own,  while  from  ten  to  fifteen  are 
success  fulJ 

David  A.  Wells,  a  well-known  American  economist  of 
the  latter  half  of  the  nineteenth  century,  estimated  that  at 
least  90  per  cent  of  those  who  go  into  business  fail.^ 

Professor  Commons  of  the  University  of  Wisconsin  in 
his  "  Distribution  of  Wealth,"  page  202,  quotes  from  some 
writer  not  named,  that  "  10  per  cent  of  the  men  who  go 
into  business  succeed,  50  per  cent  vegetate,  and  40  per  cent 
fail."  This  statement  is  accepted  as  a  basis  upon  which  to 
build  an  economic  doctrine  concerning  profits. 

Plainly  these  estimates  are  in  conflict  with  such  statistics 
as  those  offered  by  Dun  and  Bradstreet,  unless  the  latter 
are  interpreted  correctly.  For  example,  for  the  year  1910 
Bradstreet's  showed  that  11,573  firms  out  of  a  total  of 
1,592,509,  or  "^^loo  of  one  per  cent  failed.  Dun's  for  the 
same  year  showed  12,652  failures  out  of  a  total  of  1,515,143 
firms  of  all  kinds,  or  ^%oo  of  one  per  cent.  In  no  year 
since  either  of  these  two  concerns  have  begun  to  collect 
statistics  on  failures  have  the  percentages  even  equalled 
11/2  per  cent  of  the  total  number  of  concerns  in  any  one 
year. 

But  for  the  year  1910,  Bradstreet's  tables  show  that 
over  321,000  names  of  firms  were  taken  off  their  lists, 
amounting  to  more  than  20  per  cent  of  all  the  concerns  in 
businels^]during  that  year.  In  addition  to  these,  a  large 
number  of  changes  were  noted  in  firms,  some  of  which, 
at  least,  must  have  been  due  to  weakness  and  failure.  No 
explanation  is  attempted  for  these. 

To  get  a  little  more  definite  idea  of  the  actual  propor- 
tion of  failures  in  the  retail  business,  the  writer  undertook 
a  study  of  the  failures  in  his  home  city  of  Oshkosh,  Wis- 

7  "  Repartition   des   Richesses,"    Chap.    XI. 

8  "  Recent   Economic    Changes,"    p.    351. 


304  ECONOMICS  OF  RETAILING 

consin,  during  the  years  1911  and  1913.  With  the  help 
of  the  city  directories,  Hsts  were  compiled  of  all  persons 
who  had  engaged  in  certain  lines  of  the  retail  business  from 
1890  down  to  1912,  and  the  changes  in  personnel  from 
year  to  year  were  noted.  By  interviewing  a  number  of  the 
older  merchants  and  other  old  residents  of  the  city,  the 
attempt  was  made  to  find  out  for  each  retailer  who  had 
discontinued  business  during  the  period  under  study  why 
he  had  dropped  out,  so  that  the  actual  number  of  failures 
could  be  learned.  The  following  represents  the  results  of 
this  study. 

In  order  that  the  conditions  of  the  city  may  be  under- 
stood and  that  the  figures  showing  the  mortality  rate  of 
its  retail  business  may  be  given  proper  weight,  the  follow- 
ing general  facts  are  presented: 

The  population  of  Oshkosh  in  1890  was  22,836 ;  in  1900, 
28,284;  and  in  1910,  33,062.  It  is  located  in  the  heart 
of  a  rich  agricultural  area  of  eastern  Wisconsin,  and  is  the 
county  seat  of  Winnebago  County.  The  population  is 
made  up  almost  entirely  of  whites  of  North- European  ex- 
traction. Among  the  adults,  foreign  born  are  slightly  in 
excess  of  native  born  of  foreign  parents;  and  this  class  is 
somewhat  in  excess  of  native  born  of  native  parents.  Most 
of  the  foreign  born  adults  of  voting  age  are  naturalized 
citizens  according  to  the  1910  census  report.  Among  the 
foreign  born,  Germans  predominate,  and  among  the  native 
born  of  native  parents,  New  England  and  New  York  strains 
prevail.  According  to  the  statement  of  an  old  merchant, 
"  The  Yankees,  the  Germans,  and  the  Irish  run  the  town." 

From  80  to  90  per  cent  of  the  land  area  in  the  county 
is  in  farms,  and  the  average  value  of  farm  land  per  acre 
was  not  far  from  $75  in  1910.  Most  farms  run  from 
40  to  160  acres  in  size,  the  average  size  being  95  acres,  and 
the  average  number  of  acres  under  cultivation,  68  acres. 


r 


THE  FAILURE  RATE  305 


About  20  per  cent  of  the  farms  are  managed  by  tenants. 
Milk  and  milk  products,  corn,  oats,  barley,  and  potatoes 
are  the  most  important  products. 

The  manufacturing  industries  of  the  City  of  Oshkosh 
employ  over  6,000  people  and  a  capital  of  $10,000,000; 
wages  and  salaries  paid  by  these  same  industries  amount  to 
about  $3,250,000  annually.  The  chief  manufacturing  in- 
dustry is  woodworking.  A  large  number  of  the  people 
employed  are  either  unskilled  or  only  semi-skilled. 

There  were  835  persons  within  the  city  paying  an  in- 
come tax  for  1911.  Out  of  this  total,  132  retail  dealers 
were  income-tax  payers,  but  94  of  these  had  other  sources 
of  income  than  their  stores.  Only  41  of  the  income-tax 
payers  received  their  incomes  from  the  stores  alone. 
Among  these,  saloon  keepers  ranked  highest  with  a  total 
of  8,  grocers  came  next  with  5,  and  druggists  third  with  3. 

The  sales  of  the  stores  in  the  city  in  some  lines,  accord- 
ing to  estimates  made  by  leading  merchants,  amount  to 
about  $2,000,000  annually  in  groceries,  including  butter, 
eggs,  fruit,  and  vegetables;  $1,000,000  annually  in  dry- 
goods,  notions,  women's  and  children's  ready-to-wear 
goods;  $350,000  in  men's  and  boys'  clothing;  $250,000  in 
shoes;  and  $150,000  in  hardware;  all  at  retail  prices. 

As  an  illustration  of  the  probable  power  of  national 
advertising  in  helping  to  determine  consumer-demand,  it 
was  ascertained  that  there  passed  through  the  post  office, 
approximately,  the  following  number  of  magazines  each 
month  in  1911 : 

Woman's   World    500 

Ladies'  Home  Journal  40O 

Home  Life   400 

Designer    350 

Delineator   300 

Ladies'  World  , 300 

Pictorial  Review 300 

Woman's  Home  Companion 250 

Housekeeper  125 


3o6  ECONOMICS  OF  RETAILING 

Good  Housekeeping 100 

Harper's  Bazaar   50 

Everybody's    175 

Outlook    250 

Collier's 300 

Literary    Digest    150 

System     50 

In  general  these  conditions  are  very  similar  to  those  of 
other  cities  of  the  Middle  West,  and  no  unusual  or  peculiar  , 
conditions,  so  far  as  the  retail  trade  is  concerned,  exist. 
The  town  has  had  no  booms  within  the  period  under  con- 
sideration, nor  any  particular  slumps.  The  population  and 
industries  of  the  city,  as  shown  by  a  study  of  past  censuses, 
have  had  slow  gradual  growths.  In  such  a  place  as  this, 
if  anywhere,  we  should  be  able  to  find  normal  tendencies 
operating  in  the  retail  business. 

The  table  on  page  307  shows  the  number  of  retail  dealers 
in  the  city  handling  the  following  Hues  of  goods  —  gro- 
ceries, shoes,  dry-goods,  men's  clothing,  hardware,  furni- 
ture, and  drugs.  All  other  lines  are  omitted.  After  the 
date  1890  in  the  left-hand  column  of  the  table,  appears  first 
the  number  of  dealers  in  business  in  that  year.  Following 
the  line  to  the  right,  one  may  trace  the  gradual  dropping 
out  of  the  original  dealers  by  noting  the  diminished  num- 
bers at  each  date.  After  the  year  1893  in  the  left-hand 
column  of  the  table,  under  the  appropriate  place,  appears 
the  number  of  new  dealers  found  in  the  new  1893  directory 
—  dealers  who  were  not  in  the  1890  list.  These  new  firms 
are  followed  through  to  the  end  of  the  period  in  the  same 
way  as  those  found  in  the  1890  list.  The  1913  column 
shows  the  number  remaining  of  each  group.  In  the  same 
manner,  for  each  year  in  which  a  directory  was  issued,  the 
number  of  new  firms  listed  is  noted  and  then  traced  down 
to  1912. 

The  table  is  to  be  interpreted  as  follows: 

Of  the  total  number  of  merchants  in  business  in  Oshkosh 


THE  FAILURE  RATE 


307 


^  in  1890,  145  in  all,  only  18  remained  in  1912.  Of  the  43 
new  dealers  who  began  business  between  1890  and  1893, 
only  8  remained  in  1912.  Of  the  61  who  began  between 
1893  and  1895,  only  9  remained  in  1912.  Of  the  52  new 
ones  listed  in  1898,  13  remained  in  1912,  and  so  on. 

Changes  in  Retail  Dealers  in  Oshkosh  from 
1890  TO  1912 

1890  1893  1895  1898  1900  1903  1905  1908  1910  1912 

Exist'g  stores,  1890.  .  145  117   91   73   50   37   29   27  18  18 

New  firms,  1893 43   24   18   15   12   11    9    8  8 

1895 61   33   20   19   17   16  13  9 

1898 52   34   26   20   15  15  13 

1900 45   31   19   13  10  9 

1903 35   24   19  16  13 

1905 32   19  13  10 

"     "     1908 S5  24  20 

1910 .\..  41  34 

1912 38 

145  160  176  176  164  160  152  153  158  172 

It  appears  from  the  table  that  there  was  a  general  in- 
crease in  the  number  of  retailers  from  1890  up  to  1898, 
and  then  a  decrease  up  to  1908,  followed  by  another  in- 
crease up  to  1912.  Clearly  the  number  of  retailers  has  not 
increased  during  the  period  as  rapidly  as  the  population 
increased.  While  population  increased  from  28,000  to 
33,000  between  1900  and  1910,  the  number  of  retail  stores 
actually  decreased  from  164  to  158. 

The  city  was  supplied  with  145  retailers  in  1890  and 
with  176  in  1895  and  1898.  These  figures  represent  the 
range.  The  average  is  nearly  162  for  the  period.  To  keep 
the  city  supplied  with  this  number  of  stores  during  the 
period  of  22  years,  526  people  embarked  in  the  business 
and  invested  their  money  and  time.  Out  of  these,  354 
dropped  out,  leaving  172  at  the  end  of  the  period.  _.,  One  of 
the  remarkable  things  about  the  showing  is  the  ^ntinuous 
inflow  and  outflow  of  people,  keeping  the  total  number  en- 


3o8  ECONOMICS  OF  RETAILING 

gaged   in   the  business   at   any   one  time   so   close  to   the 
average. 

To  determine  the  causes  of  dropping  out,  the  writer 
was  able  to  get  information  concerning  201  out  of  the  total 
of  354  who  quit  the  business  during  the  period.  This 
information  was  gained  largely  from  wholesale  and  retail 
merchants  who  had  been  in  business  during  the  entire 
period  and  had  watched  the  development  of  the  retail  busi- 
ness and  noted  every  change  with  a  competitor's  interest. 
Out  of  the  total  of  201,  the  general  causes  for  dropping 
out  of  business  were  as  follows : 

Causes  for  Discontinuing  Business 

Cause  Number  of  Stores 

Death     24 

Retired  because  of  ill  health 1 

Bankruptcies  handled  by  courts  6 

Failures   or  fizzles    124 

Sold  out,  probably  representing  losses  * 27 

Sold  out,  representing  gains  t  14 

Retired  with  competences  t 5 

Total    201 

*  According  to  the  belief  of  the  writer's  informants,  some  loss,  amount  or 
extent  not  known,   was  involved  in   each  of  these. 

t  Success  as  defined  by  the  writer's  informants  was  often  a  very  moderate 
thing.  One  of  the  merchants  was  able  to  buy  and  pay  for  a  farm  from  the 
proceeds  of  his  sale.  Another  of  the  retired  merchants  has  an  income  of  about 
$800  a  year  from  his  investments.  The  majority  of  the  14  went  into  other  busi- 
nesses. Some  of  the  most  successful  merchants  in  the  city  are  still  in  business, 
and  are,   therefore,   not  included  in  the  table. 

Out  of  the  total  of  354  who  dropped  out  during  the 
period,  153  could  not  be  accounted  for.  Whether  they 
succeeded  or  not  could  not  be  learned.  It  seems  that  most 
of  them  quietly  disposed  of  their  businesses  and  slipped  out, 
and  the  changes  in  ownership  of  their  stores  were  hardly 
noted  by  the  people  of  the  city.  It  seems  safe  to  venture 
that  none  of  them  were  very  successful  or  they  would  have 
attracted  the  attention  of  competitors.  On  the  other  hand, 
if  they  failed,  it  was  not  probably  failure  that  involved  any 


THE  FAILURE  RATE  309 

extensive  loss  to  creditors,  or  the  latter,  particularly  the 
Oshkosh  wholesale  houses  —  in  the  grocery  line  at  least  — 
would  have  recalled  them  more  definitely. 

In  discussing  the  situation  with  some  of  the  older  mer- 
chants and  with  managers  of  wholesale  houses,  it  seemed 
to  be  the  general  estimate  that  those  who  have  entered  the 
retail  business  in  the  city  had,  on  beginning,  sums  ranging 
on  the  average  from  $300  up  to  $1,000  saved  up  from 
wages,  or  gained  in  some  other  way,  frequently  by  in- 
heritance; and  that  with  this,  and  as  much  credit  as  whole- 
sale houses  would  grant,  they  began  business.  A  few,  as 
we  have  noted,  were  able  to  make  a  success  of  it,  but  the 
great  majority  fizzled  out.  The  majority  of  retail  concerns 
in  the  city  have  a  life  of  from  less  than  a  year  up  to  8  or  10 
years,  with  the  average  centering  about  6  years.  More 
drop  out  during  the  first  year  than  during  any  other  year 
of  trial. 

The  story  of  the  retailer  who  fizzles  out  seems  to  be 
somewhat  as  follows :  He  comes  into  business  with  a 
capital  of  his  own  of  from  $300  to  $1,000,  usually  gained 
from  some  occupation  other  than  retailing.  He  spends  a 
few  years  in  the  business,  struggles  hard  to  make  it  go,  and 
then  slips  out  with  little  or  nothing  of  his  original  capital, 
and  nothing  but  a  bare  living  to  show  for  his  labor  and 
often  for  the  labor  of  members  of  his  family  also. 

There  seems  to  be  a  steady  flow  of  capital,  generally 
in  small  sums  saved  from  other  occupations,  into  the  retail 
business.  Here,  in  the  course  of  a  few  years,  it  is  consumed 
or  lost,  and  those  who  contribute  it  are  forced  to  get  out 
and  try  other  occupations  again  or  work  as  clerks,  giving 
the  results  of  their  experience  to  other  retail  store  em- 
ployers. The  contributions  of  capital  to  other  businesses 
from  the  retail  business  seem  to  be  insignificant  compared 
with  what  goes  into  it.     It  thus  appears  that  under  present 


310 


ECONOMICS  OF  RETAILING 


conditions,  retailing  is  at  least  partly  parasitic,  though  indij 
rectly  and  involuntarily  so. 

Some  light  may  be  thrown  on  the  sources  of  the  capit< 
put  into  the  retail  business  by  a  study  of  what  occupation' 
each  of  the  present  owners  of  retail  stores  in  Oshkosh  came 
from  preceding  the  present  work. 

Occupations  of  Oshkosh   Merchants  Before 
Going  into  Present  Business 

Druggists  : 

Drug  clerks    11 

Jewelry  : 

Watchmakers    6 

General  tinker  1 

Tailor  1 

Factory  hand  1 

Shoes  : 

Shoe  Qerks  11 

Cobblers    6 

Grocery  clerk 1 

Factory  hand 1 

Barber    1 

Hardware  : 

Hardware  business  formerly 2 

Hardware   store   salesmen    2 

Tinsmiths    2 

Traveling  salesman  1 

Furniture  manufacturer  1 

Iceman 1 

Clothing: 

Clothing  store  clerks 9 

Dry-goods  clerks    3 

Grocery  clerk  1 

Saloon-keeper 1 

Dry-Goods  : 

Merchants  before  3 

Dry-goods  clerks 3 

Peddler    1 

Grocer    1 

Farmer    1 

Shoe  merchant   1 

Carpenter    1 

Housewife 1 


THE  FAILURE  RATE  31 1 

Furniture  : 

Cabinet  makers  2 

Clerks  in  furniture  store 3 

Factory  worker  1 

Farmer 1 

Grocers : 

Grocery   clerks    16 

Factory  hands   16 

Housewives   (widows)    9 

Farmers   9 

Grocers  in  other  places 8 

Butchers    4 

Bakers    3 

Milkmen    3 

Carpenters    2 

Traveling  salesmen  2 

Saloon-keepers     2 

Musicians 2 

Section  man  on  railway 1 

Teamster    1 

Motorman   1 

Blacksmith    1 

Cigar-maker   1 

Shoemaker    1 

Machinist    1 

SeAving  machine  agent  1 

Policeman    1 

Grain  buyer   1 

Coal  merchant 1 

The  above  lists  also  show  that  a  very  large  number  of 
those  who  go  into  retailing  have  neither  experience  nor 
knowledge  of  the  business.  "  Anybody  can  keep  store  "  is 
the  slogan.  It  seems  a  matter  for  small  wonder,  then,  that 
so  few  are  able  to  succeed. 

To  determine  whether  the  rates  of  change  in  the  retail 
business  in  Oshkosh  were  any  different  from  those  found 
in  other  cities  of  the  same  class  in  Wisconsin,  similar  direc-. 
tory  studies  were  made  for  Janesville  and  La  Crosse  for 
ten  year  periods  each.  The  same  lines  were  considered  in 
Janesville  as  in  Oshkosh,  namely,  grocers,  shoe,  hardware, 
furniture,  dry-goods,  men's  clothing,  and  drug  dealers.  In 
the  case  of  La  Crosse,  jewelers  were  added  to  the  list.  This 
addition  is  of  no  material  consequence  in  the  general  results, 
however.     The  results  were  as  follows : 


312 


ECONOMICS  OF  RETAILING 

Changes  in  Retail  Firms  in  Janesville  from 
1890  TO  1900 

Total  Retail  Stores  in  1890  1896  1898  1900 

Total  stores,  1890 63                    31                    28  23 

New  firms,  1896 48                    29  23 

"             "  1898 17  6 

"             "  1900 25 

63  79  74  77 

Changes  in  Retail  Firms  in  La  Crosse  from 
1893  TO  1903 

Total  Retail  Stores  in         1893   1895   1897   1900   1901  1903 

Total  stores,  1893 181    124    108     95     82  71 

New  firms,  1895 55     29     23     19  16 

1897 33     21     17  14 

1900 34     17  14 

1901 31  14 

1903 35^ 

—    —    —  . 

181    179    170    173    166  164 

Changes  in  Retail  Firms  in  Beloit  between 
1890  AND  1900 

=^ 

Total  Retail  Stores  in  1890  1896  1900    j 



Total  Stores,  1890 46  27  19 

New    Firms,    1896 25  15 

1900 22 

46  52  56 

Changes  in  Retail  Firms  in  Evansville  between 
1890  AND  1900 

Total  Retail  Stores  in  1890  1896  1900 

Total  Stores,  1890 14  7  5 

New    Firms,    1896 10  4 

"  "         1900 6 

14  17  15 


THE  FAILURE  RATE  313 

Changes  in  Retail  Firms  in  Edgerton  between 
1890  AND  1900 

Total  Retail  Stores  in  1890  1896  1900 

Total  Stores,  1890 21  9  7 

New    Firms,    1896 7  4 

1900 5 

21  16  16 

Changes  in  Retail  Firms  in  Clinton  between 
1890  AND  1900 

Total  Retail  Stores  in  1890  1896  1900 

Total  Stores,  1890 15  8  7 

New    Firms,    1896 7  1 

1900 7 

15  15  15 

From  the  foregoing  it  appears  that  retailers  drop  out 
at  about  the  same  rates  in  Janesville  and  La  Crosse  as  in 
Oshkosh.  The  proportion  of  failures  is  probably  the  same. 
Similar  results  were  also  found  for  Beloit,  and  for  the 
smaller  towns  of  Edgerton,  Evansville,  and  Clinton,  all 
located  in  southern  Wisconsin,  showing  that  the  tendencies 
for  retail  dealers  to  drop  out  of  business  are  not  only  very 
high  in  such  cities  as  Oshkosh,  but  also  in  the  much  smaller 
cities  and  country  towns. 

For  the  causes  of  failure  among  retailers  we  may  refer 
to  the  classifications  of  Dun  and  Bradstreet.  While  these 
concerns  count  only  failures  of  a  limited  class,  the  causes 
that  operate  to  drive  dealers  over  into  this  class  of  failures 
are  everywhere  operative  and  probably  in  about  the  same 
proportions  as  found  by  Dun  and  Bradstreet.  These 
causes,  stated  generally,  are  as  follows: 

Bradstreet's  Classification  of  Business  Failures  ^ 

Beginners'  Handicaps  : 

1.  Lack  of  capital    29.7 

2.  Incompetence 30.2 

9  A<iapted. 


314 


ECONOMICS  OF  RETAILING 

(a)  Inexperience    4.6 

(b)  Unwise   credits    2.0 

66.5 

Personal  Faults  of  Character: 

1.  Fraud 10.3 

2.  Neglect  of  business    2.0, 

3.  Personal  extravagance 7 

13.0 

Factors  Threatening  Success: 

1.  Competition 1.9 

2.  Failure  of  others 1.3 

3.  Speculation  in  other  business   8 

4.  Specific  conditions   (disaster,  etc.)    16.5 

20.5 

Classification  of  Causes  of  Failures  in  the  Retail 

Business  ^^ 

Beginners'  Handicaps  : 

Lack  of  capital    29.5 

Incompetence  (including  inexperience)   24.0 

Unwise   credits    4.4 

General  expense  too  high 3.0 

Poor  location    2.2 

Expansion  (branch  stores)    2.0 

65.1 

Personal  Faults  of  Character: 

Fraud    4.0 

Neglect  of  business   4.0 

Personal  extravagance    4.8 

Intemperance    2.0 

14.8 

Factors  Threatening  Success  : 

Loss  by  storm,  flood,  fire,  etc 3.8 

Sickness    3.5 

Failure  of  others  2.6 

Speculation    2.1 

Competition   1.4 

Closed  by  "  sharks  "  1.2 

Robbery  of  store  1.0 

Death 8 

Loss  in  contracts    8 

Miscellaneous  causes   2.9 

20.1 

10  By  O.  W.   Mayer,  Credit  Manager,   Steele,  Wedeles  &  Co.     Adapted  from 
System,  Feb.,  1914. 


THE  FAILURE  RATE  315 

In  conclusion,  the  failure  rate  among  retail  dealers  is 
very  high,  probably  higher  than  in  any  other  phase  of  busi- 
ness of  equal  importance.  But  very  few  of  the  failures  in 
the  retail  business  reach  the  stage  of  bankruptcy  proceed- 
ings. The  large  majority  of  such  cases  are  averted  by  the 
dealer  settling  up  or  selling  out  before  the  crash.  The  fact 
that  a  large  number  of  small  dealers  own  only  their  stock 
and  rent  their  buildings  makes  it  easy  to  sell  out  and  settle 
with  wholesalers  or  others  to  whom  money  is  due  whenever 
the  dealer  finds  himself  going  hopelessly  backward.  It  is 
the  business  of  the  credit  men  of  wholesale  houses  to  watch 
over  all  concerns  exhibiting  weakening  tendencies,  and  to 
shut  off  credit  and  make  prompt  collections  as  soon  as  the 
dealer's  own  capital  begins  to  diminish.  Thus,  while  the 
dealer  may  lose  a  large  part  or  all  of  his  own  investment, 
the  creditors  may  be  able  to  come  out  of  the  settlement  with 
little  or  no  loss. 

Most  failures  in  the  retail  business  are  simply  closed 
out  in  a  quiet,  informal  way,  and  the  public  never  learns 
just  what  the  exact  financial  situation  was.  A  new  man 
with  new  capital  seems  to  be  ready  to  shp  in  and  try  his 
fortune  as  soon  as  the  old  dealer  steps  out.  No  lesson  is 
drawn  from  the  accumulated  experiences  of  the  vast  number 
of  failures  that  have  taken  place  in  the  past.  For  the  most 
part  the  system  by  which  elimination  takes  place  is  such 
as  to  preclude  the  outside  public  from  gaining  from  the 
experiences  of  others.  Those  who  do  know  most  about 
it  —  the  wholesalers  —  find  it  contrary  to  their  own  interests 
to  check  people  from  going  into  business,  even  when  the 
chances  of  ultimate  failure  are  very  great.  A  new  store  is 
a  new  customer,  and  the  wholesaler  considers  that  by  keep- 
ing close  watch  of  its  development  through  his  credit  de- 
partment, he  may  be  able  to  pull  out  whole  before  the 
inevitable  end.     Besides,  the  fiinal  outcome  is  not  always 


31 6  ECONOMICS  OF  RETAILING 

failure  in  spite  of  all  signs  to  the  contrary.  Some  of  these 
new  men  do  make  good,  and  it  is  worth  while  making  them 
customers  when  they  are  just  starting  in  business. 

Failures  among  retailers  are  a  continual  source  of 
trouble  and  expense  to  wholesalers,  but  the  incentive  to 
supply  a  new  man  with  goods  when  he  comes  with  cash  in 
hand,  and  a  certain  line  of  credit  for  a  while  at  least,  is 
stronger  than  the  incentive  to  advise  him  to  keep  out  of  the 
retail  business.  If  one  wholesaler  does  not  supply  him, 
another  will.  So,  while  wholesalers,  as  a  rule,  are  vitally 
interested  in  seeing  their  customers  succeed,  they  are  not 
in  position  to  act  as  judges  on  who  should,  and  who  should 
not,  enter  the  retail  business. 

Relief,  if  it  is  to  come,  must  come  through  a  system  of 
general,  popular  education  through  press  and  schools  in  the 
elements  of  distribution  of  goods,  in  the  work  that  must  be 
done  in  the  vocations  within  this  field,  in  the  qualifications 
that  are  required  of  those  who  take  up  this  work,  and  in 
the  perils  that  attend  it.  Something  could  be  done  by 
means  of  public  regulation,  perhaps,  through  a  license  sys- 
tem, to  limit  the  number  of  persons  who  are  to  engage  in 
retail  trade,  and  to  give  the  opportunity  to  prescribe  or 
insure  that  all  of  those  who  do  enter  shall  have  some  fitness 
and  necessary  qualifications  for  serving  the  public  properly. 
But  it  is  not  likely  that  such  regulations  of  the  retail  busi- 
ness can  be  carried  out  in  this  country  yet.  The  inherent 
belief  in  the  freedom  of  industry  and  of  trade  that  is  the 
product  of  two  hundred  and  fifty  years  of  thinking  among 
English-speaking  people,  will  hardly  permit  any  sudden 
change  to  a  practice  involving  such  regulation,  no  matter 
how  necessary  such  a  change  might  be. 


CHAPTER  XVIII 

ARE  THERE  TOO  MANY  RETAIL  STORES? 

A  belief  is  widespread  that  there  are  too  many  retailers. 
Not  only  is  this  view  held  by  many  popular  writers,  but 
also  by  many  economists.  Pizzamiglio  in  his  "  Distributive 
Co-operative  Societies  "  quotes,  among  others,  John  Stuart 
Mill,  to  the  effect  that  it  would  be  possible  to  dispense  with 
the  services  of  nine-tenths  of  the  English  traders,  and 
Thorold  Rogers,  to  the  effect  that  England  could  get  along 
very  well  with  one-fifth  of  the  actual  number  of  retailers. 
Leroy-Beaulieu  and  Roscher  were  also  named  as  holding 
similar  views  for  France  and  Germany  respectively. 

One  might  question  the  exact  meaning  of  these  state- 
ments. Did  these  critics  of  the  retail-distributing  system 
mean  that  the  ownership  of  the  existing  stores  might  be  con- 
solidated to  a  very  great  extent,  and  thus  reduce  the  number 
of  retail  store  owners?  Or,  did  they  mean  that  there  were 
too  many  retail  establishments?  Chain-store  systems,  co- 
operative distributive  societies  and,  to  a  certain  extent,  the 
establishment  of  department  stores,  would  be  the  remedy, 
if  it  could  be  shown  that  there  were  too  many  independent 
store  owners.  But  if  they  meant,  as  it  may  be  assumed 
here,  that  there  were  too  many  establishments,  then  the 
character  of  ownership  would  count  for  little.  The  remedy 
would  be  some  form  of  regulation  to  prevent  the  number 
of  stores  from  increasing  beyond  a  certain  number  in  each 
community. 

One  might  also  ask  what  is  meant  by  the  question,  "  Are 

317 


3i8  ECONOMICS  OF  RETAILING 

there  too  many  retail  stores  ?  "  Does  it  mean  too  many 
for  the  good  of  retailers  themselves?  Does  it  mean  that 
there  are  more  than  necessary  to  supply  all  the  demands  for 
services  such  as  retailers  perform?  Does  it  mean  that  if 
there  were  fewer  stores  the  service  performed  would  cost 
the  public  less?  Obviously,  if  a  retailer  makes  the  assertion 
that  there  are  too  many  stores,  he  means  that  if  there  were 
fewer  he  would  get  more  business  and  more  profit.  An 
economist  interested  in  the  conservation  and  proper  em- 
ployment of  all  labor  might  assert  that  if  there  were  fewer 
stores  the  labor  of  retail  distribution  could  be  accomplished 
by  fewer  people  and  consequently  at  lower  social  cost. 
The  consumer  wonders  if  the  duplication  of  plants  in  the 
many  near-by  stores  does  not  result  in  an  additional  burden 
of  expense  which  is  added  to  the  prices  he  must  pay  for  the 
goods  he  buys.  It  does  not  follow  that  the  conclusions 
drawn  by  these  three  classes  of  people  will  agree.  The 
purpose  of  this  chapter  will  be  to  examine  such  evidence  as 
is  available  in  order  to  answer  the  question,  if  possible, 
mainly  from  the  standpoints  of  the  retailers  and  the  con- 
sumers.^ 

As  we  have  already  seen,  our  statistical  knowledge  of 
the  retailing  business,  in  this  country  as  a  whole,  is  very 
imperfect.  The  only  statistics  that  are  available  are  the 
United  States  Census  figures  on  occupations  and  the  lists 
compiled  from  the  Dun  and  Bradstreet  mercantile  reference 
books.  Both  are  probably  defective,  the  former  in  classi- 
fication, and  the  latter  through  failure  to  list  all  persons 
engaged  in  the  retail  business. 

The  following  table  prepared  from  the  United  States 
Census  report  on  occupations  is  serviceable.  It  indicates 
the  total  number  of  retail  dealers,  and  the  number  of  dealers 

1  A  discussion  of  this  subject  appeared  in  Women's  Wear,  Dec.  4,  1914,  written 
by  Carl  H.  Fast,  Mr.  Fast  concludes  that  there  are  too  many  department  stores 
operating  under  out-of-date  systems  of  management. 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


319 


in  selected  lines  for  each  census  year  from  1850  to  1910. 
To  its  use  the  criticism  might  be  raised  that,  at  the  start, 
we  are  confusing  the  number  of  merchants  or  retail  dealers 
with  the  number  of  stores,  that  many  of  these  merchants 
may  be  owners  of  more  than  one  store.  This  criticism  is 
valid,  but  it  may  be  pointed  out  that  there  are  no  statistics 
whatever  for  the  country  as  a  whole  showing  the  number 
of  retail  establishments.  In  further  justification  of  the 
use  of  the  table,  it  may  also  be  pointed  out  that,  at  the 
present  time,  by  far  the  largest  number  of  retail  merchants 
are  owners  of  only  one  store.  While  there  have  been  a 
large  number  of  merchants  who  have  conducted  more  than 
one  establishment  during  the  entire  period,  it  is  only  within 
the  last  twenty  years  that  chain  stores  and  department  stores 
have  increased  in  great  number.  If  the  number  of  estab- 
lishments controlled  by  such  institutions  continue  to  grow, 
statistics,  such  as  these,  will  become  more  and  more  un- 
trustworthy as  a  guide  to  the  number  of  stores  actually  in 
existence. 

Development  of  Retailing 

As  Shown  by  the  Total  Number  of  Merchants  and  the 
Number  of  Retailers  in  Selected  Lines 


Line 


All    merchants*. 
Wholesalers     . . . 

Grocers 

Druggists    

Shoe   dealers 

Clothiers    

Jewelers    

Dry-Goods    

Lumber    


1850 


174,102 


24,479 
6,139 


3,780 
5,111 


1860 


267.921 


40,070 

11,031 

685 

3,346 

10,175 


1870 


357,647 


74,410 
17,369 
8,234 
7,595 
6,402 
39,790 
9.440 


1880 


479,439 


101,849 
27,700 

9,993 
10,073 

2,305 
45,831 
11,263 


1890 


691,325 
31,086 

114,849 
46,375 


42.527 


1900 


833.212 
42,326 

156,479 
57,271 
15,239 
18,095 


45,820 
16.792 


1910 


1,004,153 
64,166 
195,432 
65,575 
19.346 
35,273 
29,962 
65,283 
26.485 


*  Including   wholesalers. 

This  table  reveals  a  number  of  interesting  things.  If  it 
were  entirely  reliable  as  to  classification,  some  interesting 
conclusions  could  be  drawn   from  it.     Some  of  the  dis- 


320 


ECONOMICS  OF  RETAILING 


crepancies,  however,  are  obvious.  For  example,  the  drop 
from  6,402  jewelers  in  1870  to  2,305  in  1880,  and  then  the 
rise  to  29,962  in  1910  is  incomprehensible.  Many  dealers 
were  not  subclassified  by  the  census  enumerators  at  all  in 
each  census,  hence  the  discrepancy  may  possibly  be  explained 
by  assuming  that  a  large  number  of  jewelers  were  enumer- 
ated under  the  head  of  "  other  dealers  "  in  1880. 

The  figures  show  steady  increases  in  the  number  of 
dealers  in  practically  every  line.  It  is  interesting  to  note 
that  there  were  no  shoe  dealers  reported  in  1850,  but  that 
there  were  685  in  1860,  and  over  8,000  in  1870.  This 
period  marks  the  beginning  and  rise  of  the  manufacture  of 
boots  and  shoes  by  machine  methods.  Before  1860,  practi- 
cally all  boots  and  shoes  were  made  by  hand  by  shoemakers 
found  in  every  village  and  requiring  no  stores  or  middle- 
men. The  number  of  clothiers  also  increased  rapidly  during 
the  same  time,  and  for  the  same  reasons. 

Some  light  may  be  thrown  on  the  question  proposed 
by  the  title  of  this  chapter  by  comparing  the  number  of  re- 
tailers at  each  census  date  with  the  total  population  and  with 
the  total  number  of  persons  gainfully  employed.  By  means 
of  such  comparisons  one  may  learn  whether  the  relative 
numbers  of  dealers  to  total  population  and  to  the  total  num- 
ber of  gainfully  employed  are  increasing  or  not.  After 
such  comparisons  have  been  made  and  the  tendencies  noted, 
some  attempt  can  be  made  to  explain  these  tendencies,  and 
to  draw  conclusions  concerning  whether  there  are  too  many 
retail  establishments  or  not. 

Ratio  of  Grocers  to  Total  Population 


1850  — : 

L  grocer 

to  960 

people, 

or  1.04  per 

1,000  population 

1860  —  ] 

" 

"  750 

"  1.30  " 

«     « 

1870  —  ] 

"  527 

« 

"  1.90  " 

«     « 

1880  —  1 

"  490 

i( 

"  2.04  " 

«     « 

1890  —  ] 

"  540 

« 

"  1.85  '• 

«     « 

1900  —  1 

"  423 

« 

"  2.36  " 

i<     « 

1910  —  ] 

"  470 

« 

"  2.13  " 

«     « 

ARE  THERE  TOO  MANY  RETAIL  STORES?       321 

The  census  reports  are  somewhat  indefinite  upon  the 
point,  but  it  seems  quite  certain  that  the  number  of  grocers 
indicated  did  not  in  any  case  include  all  who  sold  groceries, 
such  as  general-merchandise  storekeepers,  but  only  those 
who  kept  one-line  grocery  stores.  It  is  to  be  noted  that 
this  number  increased  in  proportion  to  population  in  every 
decade  except  1890  and  1900.  In  that  year  it  appears  that 
there  were  fewer  in  proportion  to  population  than  at  any 
time  since  the  decade  between  1860  and  1870.  Why  this 
should  be  so  is  not  clear.  It  seems  likely  that  the  dispro- 
portionately small  number  of  grocers  indicated  for  that 
year  may  be  explained  by  failure  of  the  census  enumerators 
to  classify  all  grocers  under  this  head.  There  is  no  reason, 
so  far  as  is  known,  for  any  drop  in  the  number  of  grocers 
in  proportion  to  population  for  that  period. 

The  following  table  probably  represents  the  situation 
more  accurately.  In  this  case  the  total  number  of  mer- 
chants is  compared  with  the  total  population  and  with  the 
total  number  of  persons  gainfully  employed,  and  the  total 
number  of  persons  engaged  in  trade  and  transportation  are 
compared  with  the  total  number  of  people  gainfully  em- 
ployed at  each  census  period. 

Ratios  of  Merchants  to  Population  ^ 

XT      t,          r  >T  Number    of    Per- 

Number   of   Mer-         ^IJ^J'.f   °  n  ^nT  sons  in  Trade 

Y^^,                          chants  per  1.000             S  All  (SaLfuHv  and  Transpor- 

of  Total  Popu-              FL\^iifH7n  A?^  tation  per  1,000 

lation                      Employed  in  All  ^  ^U  Gainfully 

Industries  Employed 

1850  7.51  27.37  109.20 

1860  8.52  29.03  97.38 

1870  9.27  27.56  99.50 

1880  •    9.55  28.00  107.60 

1890  11.40  29.65  146.29 

1900  10.97  28.66  163.96 

1910  10.92  26.30  199.28 

2  The  above  table  is  based  upon  statistics  given  in  the  13th  Census  of  the  United 
States,  Vol.  IV,  Occupation  Statistics.  The  totals  of  merchants  are  as  given  in 
Table  15.  The  term  "merchants"  here  includes  both  wholesale  and  retail  mer- 
chants. No  separate  classification  of  wholesale  dealers  appears  in  the  census  be- 
fore  1890, 


322  ECONOMICS  OF  RETAILING 

It  will  be  seen  from  the  foregoing  table  that  the  number 
of  merchants  increased  relatively  to  population  from  1850 
up  to  and  including  1890,  but  that  the  ratio  decreased  for 
1900  and  1910.  The  decreases,  however,  are  so  small  as 
to  be  practically  negligible,  and  the  conclusion  seems  war- 
ranted that  beginning  about  the  year  1890  the  number  of 
retailers  in  proportion  to  population  seemed  to  remain  sta- 
tionary down  to  1910.  It  is  noteworthy  that  the  greatest 
relative  increases  in  the  number  of  merchants  came  in  the 
decades  1850  to  1860  and  1880  to  1890.  The  significance 
of  these  increases  will  be  alluded  to  later  on. 

The  proportion  of  merchants  to  all  persons  gainfully  em- 
ployed shows  the  same  general  tendency  to  increase  as  the 
proportion  of  merchants  to  population,  with  the  exception 
of  a  peculiar  rise  from  1850  up  to  1860,  followed  by  a  fall 
between  1860  and  1870.  A  marked  increase  in  number  of 
merchants  in  proportion  to  working  population  from  1880 
to  1890  is  found  here  as  well  as  in  the  ratios  of  merchants 
to  total  population.  But  from  1890  down  to  1910  the  ratio 
of  merchants  to  working  population  decreased  quite  ma- 
terially. In  other  words,  the  total  number  of  people  going 
into  industries  of  all  kinds  increased  faster  than  the  number 
of  merchants. 

The  figures  in  the  last  column  indicate  the  growing  im- 
portance of  trade  and  transportation  among  the  industries 
since  1860.  The  high  figure  for  1850  probably  shows  the 
high  tide  of  transportation  by  wagon,  river,  and  canal,  and, 
consequently,  the  great  number  of  people  required  to  trans- 
port goods.  By  1860,  for  long  distances,  transportation  by 
wagon  had  been  largely  surperseded  by  railroad  transporta- 
tion. The  tendency  of  the  numbers  employed  in  trade  and 
transportation  to  increase  since  1860  is  coincident  with  the 
development  of  railroad  transportation  on  a  large  scale.  In 
1870,  one  out  of  every  ten  persons  gainfully  employed  in 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


323 


this  country  was  engaged  in.  trade  or  transportation.  In 
1880,  one  out  of  every  nine,  in  1890,  one  out  of  every  seven, 
and  in  1900,  one  out  of  every  six,  were  so  employed. 

In  Appendix  III,  ''  General  Statistics  of  Retail  Trade," 
the  table  "  Average  Population  to  All  Kinds  of  Stores  for 
Census  Years  "  in  Boston,  shows  a  somewhat  different  ten- 
dency. In  Massachusetts  the  number  of  stores  decreased 
from  1  store  to  every  125  people  in  1875  to  1  store  to  every 
149  people  in  1890,  with  a  slight  increase  of  one  store  to 
every  142  people  in  1895.  In  1880  the  ratio  in  Boston  was 
one  store  to  every  141  people,  while  for  the  country  there 
was  one  merchant  or  dealer  for  every  105  people.  We 
need  not  attempt  to  explain  this  apparent  discrepancy  in 
numbers  except  to  point  out  that  the  United  States  Census 
enumerated  many  dealers  not  counted  at  all  by  the  Massa- 
chusetts Bureau  of  Labor '  Investigation.  The  important 
consideration  in  this  comparison,  however,  is  that  in  1890 
the  ratio  of  stores  to  population  had  fallen  to  one  to  every 
149  people,  while  for  the  country  the  ratio  had  increased  to 
one  store  to  every  95  people. 

The  explanation  is  probably  this,  that  in  Boston,  a  large 
and  old,  well  developed  commercial  center,  the  centraliza- 
tion of  retailing  into  larger  stores  had  begun  to  take  place, 
while  the  country  as  a  whole,  relatively  young,  expanding, 
and  sparsely  settled,  had  for  the  most  part  experienced  no 
such  tendency.  Except  in  the  large  cities,  concentration  in 
the  form  of  department  stores  could  not  take  place.  No 
check  in  the  relative  increase  of  retailers  in  proportion  to 
population  began  to  appear  for  the  country  as  a  whole  be- 
fore the  decade  between  1890  and  1900.  During  this 
decade  the  ratio  of  dealers  to  population  in  Boston  actually 
increased.  The  reasons  for  this  increase  are  not  clear. 
A  partial  explanation  may  be  found  in  the  fact  that  during 
this  decade  a  large  number  of  immigrants  began  to  pour 


324  ECONOMICS  OF  RETAILING 

into  the  industrial  sections  of  the  city,  bringing  with  them 
the  European  habit  of  trading  at  small  shops  and  markets. 

Whatever  local  variations  there  may  have  been,  it  is 
clear  from  the  census  that  the  number  of  retailers,  and,  pre- 
sumably, the  number  of  retail  stores,  increased  very  rapidly 
from  1850  down  to  1910.  Not  only  was  there  an  increase 
in  actual  numbers,  but  also  relatively  to  population,  except- 
ing the  apparent  tendency  for  the  number  of  merchants  in 
proportion  to  population  to  fall  off  during  the  last  two 
decades.  The  fact  that  the  number  of  merchants  has  in- 
creased lends  color  to  the  belief  held  by  many  that  there 
are  too  many  retail  stores.  Considered  in  an  unqualified 
way  this  proposition  has  led  to  the  judgment  that  the  cost 
of  distributing  goods  must  of  necessity  be  relatively  higher 
today  than  it  was  forty  or  fifty  years  ago.  Since  there  are 
more  people  engaged  in  the  distributive  business  today  than 
there  were  then,  and  since  all  of  these  additional  people 
must  be  supported,  this  expense,  so  the  reasoning  runs,  must 
be  borne  by  the  consumers.  Assuming  that  the  number  of 
retail  stores  was  quite  sufficient  in  proportion  to  population 
in  1850  or  1860,  it  seems  easy  to  jump  to  the  conclusion  that 
since  there  are  relatively  more  stores  now,  there  must  now 
be  too  many.  This  conclusion  should  not  be  drawn,  how- 
ever, without  question.  For  if  it  can  be  shown  that  there 
is  now  much  more  work  to  be  done  by  retailers  and  that 
the  former  proportion  of  retail  stores  could  not  adequately 
handle  the  business  that  must  now  pass  over  retail  counters, 
then  there  may  not  be  too  many  retailers  even  if  there  are 
more  than  there  were  fifty  years  ago.  This  point  needs 
study. 

The  function  of  the  retailer  is  to  distribute  goods.  In- 
stead of  comparing  the  number  of  stores  with  the  number  of 
people,  it  would  be  better  to  compare  the  number  of  stores 
with  the  amount  of  work  done,  that  is,  the  amount  of  goods 


ARE  THERE  TOO  MANY  RETAIL  STORES?       325 

sold  by  the  stores.  Unfortunately  such  a  comparison  can- 
not be  made  directly,  for  there  are  no  statistics  showing  the 
amount  of  goods  sold  through  the  retail  stores  of  the  coun- 
try for  any  year. 

The  nearest  approach  to  an  equitable  basis  for  such  a 
comparison  that  is  available  is  the  United  States  Census  val- 
uation of  goods  manufactured  in  this  country,  and  the  tables 
showing  values  of  exports  and  imports. 

Probably  the  greater  part  of  manufactured  goods  and 
goods  imported  are  sold  to  consumers  through  dealers. 
Obviously  there  are  many  exceptions.  For  example,  large 
items  in  the  total  of  manufactured  goods  such  as  foundry 
and  machine  shop  products,  iron  and  steel  products,  railway 
equipment,  electrical  machinery,  illuminating  gas,  coke,  etc., 
make  up  a  considerable  proportion  of  the  total,  but  are  not 
handled  by  retail  stores  at  all,  or  at  least  to  a  very  small 
extent.  The  figures  representing  the  value  of  manufac- 
tured products  as  given  by  the  United  States  Census  do  not 
represent  merely  the  values  of  finished  products  ready  for 
final  consumption.  The  goods  which  pass  through  several 
processes  of  manufacture  have  their  values  counted  in  the 
totals  for  each  process.  But  in  making  comparisons  of  the 
number  of  people  in  the  distributing  business  with  the  total 
values  of  manufactured  goods  and  imports,  the  goods  not 
handled  by  retailers  and  the  items  of  duplication  in  values 
found  in  the  total  of  manufactured  goods,  may  perhaps  be 
assumed  to  have  a  somewhat  constant  relationship  to  the 
total  values  for  the  period  under  consideration.  It  is  as- 
sumed here  that  any  considerable  change  in  the  volume  of 
manufactured  goods  and  imports  as  represented  by  their 
values  would  be  likely  to  have  some  appreciable  and  direct 
effect  upon  the  amount  of  work  to  be  performed  by  dealers. 

It  will  occur  to  some  at  once  that  the  items  of  merchan- 
dise included  in  the  totals  for  manufactured  goods  which 


326  ECONOMICS  OF  RETAILING 

are  not  handled  by  dealers  may  have  increased  more  rapidly 
in  value  than  other  kinds  of  goods.  A  comparison  of  the 
census  statistics  for  1910  with  1900  does  not  seem  to  bear 
out  this  objection.  For  example,  the  value  of  iron  and  steel 
products  in  1909  exceeded  those  of  1899  by  about  65  per 
cent,  but  the  percentages  of  increase  for  the  same  period  was 
as  follows  for  the  following  goods,  all  of  which  are  handled 
by  retail  concerns  of  one  kind  or  another:  slaughtering 
and  meat  packing,  73.8  per  cent;  flour  mill  products,  76.2 
per  cent;  cotton  goods,  85.3  per  cent;  men's  clothing,  75.4 
per  cent;  boots  and  shoes,  76.8  per  cent;  bread  and  other 
bakery  products,  126.3  per  cent;  and  women's  clothing, 
141.5  per  cent.  It  is  believed  that  in  spite  of  the  many 
items  under  the  head  of  manufactured  goods  not  handled 
by  retail  dealers,  the  total  values  represent  a  fair  basis  of 
comparison  when  employed  to  show  the  increase  in  the 
amount  of  business  that  must  be  done  by  the  retail  trade. 
As  an  offset  to  large  increases  among  manufactured  goods 
not  handled  by  retailers,  one  should  remember  that  there 
has  been  a  very  rapidly  increasing  amount  of  farm  produce 
entering  into  the  system  of  distribution  which  does  not  ap- 
pear under  the  head  of  manufactured  goods  at  all.  Among 
such  products  are  vegetables,  poultry,  eggs,  and  fruit.  It 
needs  no  citation  of  statistics  to  maintain  that  the  volume  of 
such  goods  handled  by  retail  stores  has  greatly  increased 
within  the  last  twenty  or  thirty  years. 

It  may  be  urged  that  the  values  of  manufactured  goods 
as  expressed  in  1910  are  not  fairly  comparable  with  the 
figures  for  earlier  decades  because  of  the  increases  in  prices. 
While  the  values  have  gone  up,  it  may  be  urged,  the  volume 
has  not  correspondingly  increased.  This  is  a  valid  objec- 
tion so  far  as  it  goes.  If  prices  have  gone  up  faster  than 
the  volume  has  increased,  then  there  is  some  ground  for  the 
belief  that  the  decrease  in  ratio  between  the  number  of  mer- 


ARE  THERE  TOO  MANY  RETAIL  STORES  ? 


327 


chants  and  the  total  of  manufactured  goods  is  more  ap- 
parent than  real.  It  would  take  considerable  statistical 
study  to  determine  this  point  fully.  It  seems  probable, 
however,  that  the  effect  of  rising  prices  has  been  merely  to 
qualify  or  limit  the  tendency  of  the  volume  of  manufac- 
tured goods  to  increase  more  rapidly  than  the  number  of 
distributors.  It  must  be  left  for  some  future  statistician 
to  demonstrate  the  truth  or  falsity  of  this  position. 

The  following  table  gives  the  essential  facts  regarding 
the  relations  of  the  values  of  manufactured  goods  and  im- 
ports to  the  number  of  retailers,  to  the  number  of  commer- 
cial travelers,  to  the  total  number  of  people  who  are  gain- 
fully employed,  and  to  the  total  population : 

Comparison  of  the  Number  of  Distributors 

With  the  Total  of  Goods  Manufactured  and  Imported,  with 

Total  Population  and  with  Total  Number  of 

Persons  Gainfully  Employed. 


/— N 

/— s 

/— s 

/-N 

•0 

TJ 

-o 

-o 

a> 

<U 

^ 

c 

4> 

factured 

s 

000  omi 

1 

tn  0 

■>->  0 

«+.<  en 

erof 

-nercial 

elers 

Number 
oyed  in 
e  and 
sportati 

Number 

fully 

loyed 

1! 

^  2 

1-1 

Manu 
Gooc 
(000, 

^  -2 

Numb 
Conu 
Trav 

Total 
Emp 
Trad 
Tran 

Total 
Gain 
Emp 

Total 
Popt 
(000 

1850... 

$  1,109 

$  174 

$  1,193 

174,000 

582,000 

5,330,000 

23 

1860... 

1,886 

331 

2,217 

268,000 

. . . . 

802,000 

8,236,000 

31 

1870... 

3,386 

418 

3,804 

358,000 

7,000 

1,244,000 

12,506,000 

39 

1880... 

5,370 

446 

5,816 

479,000 

28,000 

1,872,000 

17,392,000 

50 

1890... 

9,372 

745 

10,117 

691,000 

59,000 

3,326,000 

22,736,000 

63 

1900... 

13,000 

697 

13,697 

833,000 

93,000 

4,767,000 

29,073,000 

76 

1910... 

20,672 

1,312 

21,984 

1,004,000 

164,000 

6,252,000 

38,167,000 

92 

A  study  of  this  table  and  the  chart  on  page  329  shows 
an  increase  in  every  item  mentioned,  for  each  census  year 
over  the  census  year  preceding.     But  manufactures  and  im- 


328  ECONOMICS  OF  RETAILING 

ports  increased  more  rapidly  than  either  the  totals  of  persons 
in  trade  and  transportation,  or  of  merchants.  The  increase 
in  the  number  of  traveling  salesmen,  however,  seemed  to 
parallel  the  increase  in  manufactures  and  imports  very 
closely. 

By  a  study  of  the  chart  it  will  be  seen  that  the  abrupt 
expansion  of  manufactures  and  imports  from  1880  to  1890 
is  accompanied  by  a  similar  increase  in  the  total  number  of 
persons  employed  in  trade  and  transportation,  and  also  in 
the  number  of  traveling  salesmen.  The  number  of  mer- 
chants also  increases,  but  not  in  such  an  abrupt  fashion  as 
the  foregoing.  From  1890  to  1900,  manufactures  and  im- 
ports did  not  -increase  so  radically  as  in  the  preceding  decade. 
A  similar  decline  in  the  rate  of  increase  is  to  be  noted  for 
the  number  of  merchants  and  the  total  engaged  in  trade  and 
transportation.  But  the  retardation  is  more  marked  for 
merchants  than  for  the  entire  group  employed  in  trade  and 
transportation. 

So  far  as  the  statistics  go,  it  seems  that  the  number  of 
persons  engaged  in  the  marketing  of  goods  has  tended  to  in- 
crease with  the  amount  of  goods  to  be  marketed,  but  the 
number  of  merchants  and  the  total  number  of  persons  en- 
gaged in  trade  and  transportation  did  not  increase  quite  so 
rapidly  as  the  volume  of  goods.  Between  the  number  of 
traveling  salesmen  and  the  volume  of  manufactures  and 
imports,  however,  there  is  the  closest  correlation. 

From  the  above  it  is  clear  that,  while  merchants  and 
dealers  as  well  as  the  total  engaged  in  trade  and  transporta- 
tion have  increased  faster  than  population,  these  classes  have 
not  increased  as  rapidly  as  the  volume  and  value  of  goods 
that  they  have  been  called  upon  to  handle.  It  would  appear 
from  the  foregoing  that  each  dealer  handled,  on  the  aver- 
age, more  business  in  1900  or  1910  than  in  1860  or  1870. 
In  other  words,  while  there  were  more  dealers  in  proportion 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


329 


Comparison  by  Decades  of  the  Number  of  Merchants, 
OF  Commercial  Travelers,  and  of  Total  Persons  in 
Trade  and  Transportation,  with  the  Total  Value 
OF  Manufactures  and  Imports. 


330  ECONOMICS  OF  RETAILING 

to  population  in  1910  than  in  1870,  for  example,  the  dealers 
of  1910  were  required  to  handle  proportionately  more  goods. 
Consumers  had  become  relatively  more  dependent  upon  re- 
tail stores  for  their  supplies. 

Some  additional  explanation  may  be  necessary  to  make 
clear  why  more  distributors  are  needed  as  the  products  to 
be  distributed  increase.  It  must  be  borne  in  mind  that  a 
very  large  proportion  of  the  changes  in  methods  of  manu- 
facture since  1850  have  been  due  to  the  introduction  of 
labor-saving  machinery  and  to  large-scale  production. 
These  changes  have  resulted  in  great  economies  such  as  a 
reduced  cost  per  unit  of  product,  but  these  economies  in 
most  cases  could  be  realized  only  by  developing  wide 
markets.  The  distribution  of  goods  directly  to  nearby  con- 
sumers, as  had  been  customary  in  the  stage  when  hand  pro- 
duction prevailed,  no  longer  sufficed.  Consequently,  with 
large-scale  production,  have  grown  up  great  systems  of 
transportation,  of  markets,  and  of  middlemen. 

Large-scale  machine  production  drove  independent  pro- 
ducers using  the  older  methods  out  of  business.  Many  of 
these  thereupon  engaged  in  some  specialized  form  of  pro- 
duction as  wage  earners.  In  this  capacity,  they  became 
more  and  more  dependent  upon  retail  stores  for  the  goods 
they  and  their  families  consumed.  As  the  class  of  wage 
earners  increased,  and  as  the  specialization  of  industry  went 
on,  the  number  of  people  going  to  stores  for  the  necessities 
of  life  increased.  The  old  time  self-sufficing  home,  in 
which  all  the  food,  clothing,  and  other  goods  consumed 
were  produced  by  the  family  itself,  passed  away.  Work 
at  the  factories  for  wages  took  the  place  of  work  at  home 
and  the  retail  store  became  the  market  for  the  exchange  of 
wages  for  the  necessities  and  comforts  of  life. 

Factory  production  has  been  the  chief  cause  of  the 
growth  of  modern  cities.     But  the  greater  the  number  of 


ARE  THERE  TOO  MANY  RETAIL  STORES?       331 

people  who  live  together  in  cities,  the  greater  the  work  of 
distribution.  People  who  live  in  the  country,  and  even  in 
small  villages,  are  able  to  produce  a  great  many  things  for 
their  own  use,  such  as  vegetables,  fruits,  poultry  and  dairy 
products,  meats,  and,  in  some  parts  of  the  country,  even 
fuel.  It  is  also  possible  in  rural  communities  and  in  small 
villages  for  the  producers  and  consumers  to  come  together 
frequently  and  make  direct  exchanges  without  the  medium 
of  middlemen.  In  cities,  however,  there  is  very  little  op- 
portunity for  a  family  to  produce  anything  that  it  can  con- 
sume directly.  Nor  is  there  very  much  opportunity  for 
buying  goods  directly  from  producers.  Everything  that  is 
to  be  used  must  be  obtained  from  some  dealer.  The  de- 
mand from  cities  for  products  suitable  for  consumption  is 
spread  over  vast  areas  of  territory,  and,  consequently,  a 
need  for  an  extensive  and  intricate  distributing  system  is 
created. 

The  changes  in  the  standards  of  living  of  the  American 
people  that  took  place  between  1850  and  1910  have  also  had 
an  important  effect  on  the  distributive  system.  At  the  latter 
date  practically  all  people  consumed  a  much  wider  variety 
of  goods  than  at  any  time  previously.  Goods  were  pur- 
chased in  much  smaller  quantities,  therefore  requiring  more 
handling  and  care.  In  general,  customers  of  retail  stores 
required  much  more  personal  attention  than  before.  These 
changes  in  the  customer  have  helped  to  place  a  bigger  burden 
on  the  distributive  system. 

Thus,  as  the  area  over  which  the  distribution  of  goods 
has  to  be  effected  is  enlarged,  as  a  greater  number  of  cus- 
tomers have  to  be  reached,  as  the  custom  or  necessity  for 
purchasing  goods  at  stores  rather  than  making  them  at  home 
has  increased,  and  as  city  life  has  developed,  the  variety  and 
total  volume  of  manufactured  goods  distributed  through 
retail  stores  has  greatly  increased,  and  the  distribution  of 


332 


ECONOMICS  OF  RETAILING 


the  goods  has  become  increasingly  important,  and  has  de- 
manded the  services  of  more  and  more  people. 

It  has  been  noted  generally  that  the  costs  of  production 
both  in  factory  and  on  farm  have  diminished  during  the 
period  we  have  studied,  namely,  from  1850  to  1900.  It  has 
not  been  noted,  however,  that  the  increased  production  con- 
sequent to  lower  costs  has  made  necessary  a  much  wider 
distribution  involving  more  handling,  transporting,  and  sell- 
ing. While  the  average  costs  of  production  per  unit  of 
product  have  decreased,  the  average  costs  of  distribution 
per  unit  have  probably  increased  for  many  though  not  for 
all  goods.  To  make  clear  what  is  believed  to  be  a  fair  rep- 
resentation of  what  has  taken  place,  the  following  diagram 
may  be  used: 


I 


i 

i 


i 


Diagram  Showing  Tendency  of  Costs  of  Production  to  Decrease,  and  of 
Costs  of  Distribution  to  Increase. 


Suppose  the  line  ab  to  represent  the  costs  of  manufac- 
ture of  a  given  unit  of  goods,  and  ax  to  represent  the  costs 
of  distributing  that  unit,  in  1850.  Let  us  assume  that  the 
costs  of  manufacture  have  decreased  in  the  following  GO 


ARE  THERE  TOO  MANY  RETAIL  STORES? 


333 


years  so  that  in  1910  they  may  be  represented  by  the  line 
cd.  In  the  meantime,  for  the  causes  already  given,  the 
costs  of  distribution  have  risen  so  that  in  1910  they  equal 
cy.  The  results  are  that  the  costs  of  the  goods  to  the  con- 
sumer equalled  ab  plus  ax,  or  bx,  in  1850  and  cd  plus 
cy,  or  dy,  in  1910.  Thus,  while  the  total  costs  to  the  con- 
sumer have  undoubtedly  gone  down  during  the  period  un- 
der consideration  they  have  not  gone  down  in  the  proportion 
that  the  costs  to  manufacture  have  decreased,  for  with  de- 
creasing costs  in  production  there  have  of  necessity  come  the 
increasing  costs  of  distribution. 

It  is  not  to  be  supposed  that  the  decreasing  costs  of 
manufacture  are  equalled  by  the  increasing  costs  of  dis- 
tribution. If  that  were  true,  then  there  would  be  no  incen- 
tive to  install  labor  saving  improvements,  or  construct  larger 
plants.  It  is  simply  maintained  that  the  full  economies  of 
modem,  large-scale,  factory  production  could  not  possibly 
be  passed  on  in  entirety  to  the  consumer.  It  is  even  con- 
ceivable that  in  the  development  of  a  given  industry  the 
point  may  be  reached  where  slight  improvements  leading  to 
an  increased  and  cheapened  product  may  be  entirely  counter- 
balanced by  the  additional  expense  involved  in  marketing 
this  additional  product. 

Increases  in  the  number  of  retail  stores  in  proportion  to 
population  are  thus  abundantly  accounted  for  by  the  in- 
creased service  that  they  have  been  called  upon  to  perform. 
Whether  there  are  now  too  many  retail  stores  or  not,  it  is 
certain  that  there  is  a  necessity  for  more  stores  now  than 
fifty  years  ago. 

From  the  standpoint  of  the  retailer  there  are  too  many 
retail  stores.  There  would  be  too  many  if  only  half  of  the 
present  number  were  in  existence,  for  the  presence  of  com- 
petitors generally  means  divided  trade  and  less  profit.  From 
Chapter  XVII,  "  The  Failure  Rate  in  the  Retail  Business,'* 


334 


ECONOMICS  OF  RETAILING 


it  seems  clear  that  a  somewhat  less  keen  competition  would 
insure  many  more  retailers  a  fair  living  wage  from  their  oc- 
cupation and  thus  result  in  fewer  discontinuances  and 
changes  in  the  personnel  of  the  business. 

From  the  standpoint  of  the  public  it  is  not  so  easy  to 
pass  judgment.  It  is  true  that  the  number  of  retailers  is 
great  and  it  is  also  true  that  the  costs  of  distribution  are 
high.  But  it  does  not  appear  that  any  other  class  than  the 
retailers  themselves  would  benefit  largely  from  cutting  down 
their  number.  The  loss  of  the  retailers  due  to  their  competi- 
tion is  largely  the  gain  of  the  consuming  public.  If  the  num- 
ber of  retailers  could  by  legal  mandate  be  reduced  by  one- 
half,  the  results  to  the  public  would  be  a  very  general  reduc- 
tion in  the  amount  of  conveniences  and  services,  such  as  re- 
tailers now  furnish,  and,  very  likely,  an  increase  in  the  costs 
of  distribution.  Each  store  would  be  called  upon  to  per- 
form twice  the  service  it  now  gives;  but,  if  one  may  judge 
from  the  experience  of  present  stores  that  have  developed 
to  twice  or  more  times  their  former  size,  doubling  the  busi- 
ness of  each  store  will  not  necessarily  result  in  a  reduced 
selling  expense.  Retailing  is  different  from  most  other 
businesses  in  this  respect  that  the  small  store  can  usually  be 
conducted  at  a  lower  cost  than  a  larger  store.  Unless  other 
advantages,  such  as  in  buying  or  in  advertising,  may  be 
gained  to  offset  the  increasing  expense  of  the  large  estab- 
lishment, there  is  nothing  to  be  gained  by  increasing  the 
business  of  a  store  beyond  a  certain  point  that  keeps  a  small 
institution  busy. 

From  the  standpoint  of  certain  classes  of  consumers 
with  relatively  high  standards  of  living,  a  somewhat  larger 
average  retail  business  unit  would  be  highly  desirable.  The 
extreme  subdivision  of  the  retail  stores  now  found  in  most 
parts  of  this  country,  while  not  so  great  as  in  European 
countries,  prevents  each  store  from  offering  a  wide  variety 


ARE  THERE  TOO  MANY  RETAIL  STORES  ? 


335 


of  goods.  It  also  takes  something  more  than  the  average 
amount  of  business  at  average  profits  to  equip  and  conduct 
a  modern  meat  or  grocery  store,  for  example,  in  a  manner 
entirely  satisfactory  to  such  consumers.  Refrigerators, 
automatic  scales,  electric  conveyors  for  cash  and  parcels, 
marble-topped  counters,  plate  glass  and  metallic  fixtures, 
automobile  delivery  outfits,  salespeople  dressed  in  well- 
laundered  white  suits,  absolute  cleanliness,  ornamental  and 
artistic  displays  of  goods,  sanitary  arrangements,  and  so  on, 
constitute  the  necessities  of  a  well-ordered,  up-to-date  food 
store  such  as  these  consumers  would  like  to  patronize.  But 
to  support  a  concern  of  this  kind  requires  both  a  larger 
amount  of  business  than  the  ordinary  store  gets  and  also 
a  higher  rate  of  gross  profit.  As  the  education  of  the  con- 
sumers goes  on,  and  as  the  standard  of  living  rises,  the  de- 
mand for  such  stores  as  these  will  grow.  One  may  expect 
to  see  their  number  increase  even  in  competition  with  the 
smaller  stores  with  the  cheaper  equipments,  lower  expenses 
of  doing  business,  and  lower  prices. 

In  conclusion  jt  may  be  stated  that,  from  the  standpoint 
of  the  entire  public,  there  is  nothing  to  indicate  that  the 
great  number  of  retail  stores  adds  anything  to  the  burden 
of  expense  the  consumer  must  bear.  The  high  failure-rate 
in  the  retail  business  would  seem  to  indicate  that  retail  dis- 
tribution is  supported,  in  part  at  least,  not  by  the  consumers 
who  patronize  the  stores,  but  by  the  great  numbers  who 
enter  the  business  of  retailing  with  capital  accumulated  in 
other  occupations  and  then  lose  it  in  the  retailing  venture. 
The  losses  of  dealers  who  fail  are  primarily  the  losses  of 
the  dealers  themselves.  Only  in  the  most  general  way  of 
speaking  could  one  assert  that  the  public  must  bear  the  bur- 
den. Certainly,  no  extra  burden  is  added  to  the  prices 
charged  consumers  because  of  the  keenness  of  competition 
resulting  from  too  many  stores. 


336  ECONOMICS  OF  RETAILING 

There  are  opportunities,  however,  of  keeping  down  the 
costs  of  distribution  which  should  not  be  neglected.  The 
same  inventive  genius  that  has  been  applied  to  the  produc- 
tion of  goods  so  as  to  cut  down  the  costs  per  unit  can  no 
doubt  be  applied  in  a  similar  way  to  cut  down  the  costs  of 
distribution  per  unit.  What  is  needed  is  the  application  to 
distribution  of  science  and  research  as  these  methods  are 
now  applied  to  production. 


CHAPTER  XIX 

PUBLIC  REGULATION  OF  THE  RETAIL 
BUSINESS 

The  suggestion  that  retail  stores  should  be  regulated 
has  frequently  been  made.  Something  is  already  being  ac- 
complished in  this  direction  by  states  and  municipalities 
through  inspections  designed  to  secure  purity  of  foods,  legal 
weights  and  measures,  proper  sanitary  arrangements,  suffi- 
cient protection  from  fire  and  from  elevator  accidents,  and 
observance  of  legal  requirements  as  to  employees.  Advo- 
cates of  regulation  go  still  further,  however,  and  declare 
that  the  number  of  stores  should  be  limited.  By  such  regu- 
lation, it  is  maintained,  the  standard  of  retailing  would  be 
automatically  raised,  resulting  in  better  working  conditions 
for  the  retailers  themselves  and  better  service  for  the  con- 
sumers. A  business  or  license  tax  has  most  frequently  been 
proposed  as  the  means  whereby  such  a  limitation  could  be 
effected. 

In  order  to  understand  fully  what  this  proposal  compre- 
hends it  will  be  necessary  to  give  some  consideration  to  the 
nature  of  business  taxation. 

"  Business  taxes  "  is  an  indefinite  term  covering  what 
are  variously  called  "  license  taxes,"  "  business  licenses," 
"  business  taxes," "  "  privilege  taxes,"  "  occupation  taxes," 
and  so  on.  In  a  limited  way  nearly  all  states  in  the  Union 
have  some  form  of  tax  corresponding  to  some  one  or  more 
of  the  above.  The  kind  most  frequently  met  with  is  the 
license  fee  or  tax  upon  the  manufacturers  and  distributors 

ZZ7 


338  ECONOMICS  OF  RETAILING 

of  liquor.  Only  a  little  less  frequently  does  one  find  that 
peddlers  and  certain  forms  of  amusement  enterprises  must 
pay  license  taxes. 

When  the  amount  assessed  upon  any  business  or  occu- 
pation is  barely  enough  to  cover  "  the  legitimate  costs  of 
regulation  and  no  more,  considering  all  probable  conse- 
quences," ^  it  is  technically  known  as  a  fee  and  not  as  a 
tax.  A  tax  presupposes  a  surplus  of  revenue  above  all  costs 
of  collection  and  other  expenses  incurred  by  the  taxing  body 
in  its  relations  to  the  person  or  business  taxed.  But  the 
popular  use  of  the  word  "  tax  "  includes  both  meanings. 

A  license  has  been  defined  as  a  "  privilege  granted  by  the 
State,  usually  on  payment  of  a  valuable  consideration, 
though  this  is  not  essential.  To  constitute  a  privilege  the 
grant  must  confer  authority  to  do  something  which  without 
the  grant  would  be  illegal;  for  if  what  is  to  be  done  under 
the  license  is  open  to  everyone  without  it,  the  grant  would 
be  merely  idle  and  nugatory,  conferring  no  privilege  what- 
ever. But  the  thing  to  be  done  may  be  something  lawful 
in  itself,  and  only  prohibited  for  the  purposes  of  the  license; 
that  is  to  say,  prohibited  in  order  to  compel  the  taking  out 
of  a  license."  ^ 

Taxes,  using  the  word  in  the  popular  sense,  may  be  col- 
lected by  a  state  either  under  its  taxing  power  or  under  its 
police  power.  Under  the  taxing  power  the  state  secures  its 
general  revenues.  This  power,  which  is  of  very  wide  scope 
and  subject  only  to  constitutional  and  statutory  limitations, 
may  be  applied  in  almost  any  way.  The  only  limitations 
under  most  state  constitutions  and  in  court  practice  are  that 
the  tax  must  be  uniform  and  must  not  be  oppressive. 

Under  the  police  power,  which  "  extends  to  the  protec- 
tion of  the  lives,  health,  and  property  of  the  citizens,  and 

1  "  Cooley  on  Taxation,"  p.  1138. 

2  Id.,  pp.    1137-8. 


PUBLIC  REGULATION 


339 


to  the  preservation  of  good  order  and  public  morals/'  ^  any- 
state  can  license  any  occupation  which  can  be  shown  to  need 
regulation.  In  such  cases  the  amount  collected  for  licenses 
is  such  as  is  judged  will  pay  the  expenses  of  regulation. 
Frequently,  however,  these  two  powers  of  the  state  are  com- 
bined in  the  same  act,  and  the  result  is  taxation  for  revenue 
and  for  regulation  at  the  same  time.  In  these  cases  the 
amount  collected  is  something  more  than  a  fee.  It  is  in 
fact  a  true  tax. 

''  Business  taxes  "  may  be  collected  either  as  an  amount 
payable  periodically  in  the  same  way  as  any  other  general 
tax,  or  as  a  payment  for  a  license.  This  is  a  technical  dis- 
tinction that  is  necessary  to  an  understanding  of  how  the 
license  system  works.  If  a  tax  is  not  paid  when  due,  the 
business  upon  which  it  is  levied  does  not  thereby  become 
unlawful,  but  the  tax  must  be  collected  through  the  same 
channels  as  those  prescribed  for  other  general  taxes.  Under 
a  license  system,  the  payment  for  the  license  must  be  made 
before  the  business  can  lawfully  begin.  The  common  busi- 
ness tax,  like  a  property  tax,  is  payable  after  the  business  has 
come  into  existence,  but  the  license  payment  must  be  made 
before  anything  else  can  be  done  in  the  business. 

The  purpose  of  the  business  tax  may  be  either  to  secure 
a  revenue  for  the  government  or  to  regulate  the  occupations 
or  businesses  subject  to  the  tax.  The  latter  is,  obviously, 
the  aim,  at  least  in  part,  in  most  communities  where  saloons 
are  required  to  pay  a  license  fee.  For  similar  reasons, 
bowling  alleys,  billiard  halls,  and  theatres  are  often  required 
to  take  out  licenses  since  there  is  commonly  some  necessity 
for  regulation  in  connection  with  the  conduct  of  such  es- 
tablishments. 

In  some  cases,  the  aim  of  the  business  tax  is  to  prohibit 
the  business  or  occupation  entirely  by  fixing  the  tax  so  high 

3  Davock  V.    Moore,   105   Mich.   120. 


340  ECONOMICS  OF  RETAILING 

as  to  make  it  unprofitable,  or  undesirable,  to  continue  in  it. 
Lotteries,  gambling  houses,  bucket  shops,  and  also  saloons 
have  in  some  cases  thus  been  taxed  out  of  existence.  Pro- 
hibition of  such  institutions  by  taxation,  however,  is  an  indi- 
rect method  that  is  not  at  present  strongly  favored.  This 
method  usually  results  in  failure  to  prohibit.  If  the  tax  is 
not  placed  high  enough,  the  business  will  continue  to  exist, 
and  if  it  is  made  too  high,  practice  shows  that  the  tax  will 
be  evaded. 

A  business  tax  or  license  system  could  be  used  to  build 
up  a  monopoly.  A  tax  of  such  nature  is  that  imposed  by  the 
National  Government  of  10  per  cent  on  the  note  issues  of 
state  banks.  The  rate  is  prohibitive  and  gives  to  the  na- 
tional banks  the  monopoly  of  issuing  bank  notes.  At  one 
time  it  was  common  for  European  sovereigns  to  grant 
patents  or  licenses  to  private  individuals  in  return  for  high 
fees  or  payments,  giving  those  individuals  practical  monop- 
olies of  certain  businesses  in  certain  communities.  Such 
grants  were  prohibited  in  England  in  1624,  and  in  this  coun- 
try such  acts  are  forbidden  by  the  constitution. 

Practically,  however,  a  high  license  or  business  tax  sys- 
tem may  have  the  effect  of  granting  a  partial  monopoly,  for 
the  reason  that,  while  the  privilege  may  be  exercised  by  any- 
one upon  the  payment  of  a  fee  or  tax,  it  may  not  be  profit- 
able for  more  than  one  to  procure  the  license  and  engage  in 
the  business,  consequently  that  one  gains  practical  control  of 
the  trade  in  that  community. 

A  business  tax  may  be  levied  for  the  purpose  of  pro- 
tecting local  industries  or  businesses  by  preventing  compe- 
tition from  outsiders.  The  license  tax  required  of  peddlers 
comes  under  this  head.  The  local  merchants  of  a  town  are 
protected  to  the  extent  that  the  tax  deters  peddlers  from 
engaging  in  this  form  of  traffic  in  that  community.  The 
house-to-house  method  of  selling  has  certain  advantages, 


PUBLIC  REGULATION  34 1 

however,  that  may  make  it  profitable  for  a  peddler  to  go  on 
with  his  business  even  if  he  must  pay  a  high  tax.  The  occa- 
sional peddler  who  does  pay  it  reaps  another  advantage  due 
to  the  fact  that  his  competition  with  other  peddlers  has  been 
materially  reduced.  This  point  explains  why  peddling  does 
not  entirely  cease  even  when  the  peddler's  tax  is  placed  at 
a  very  high  figure. 

Some  writers  on  taxation  have  held  that  peddlers 
render  to  the  consuming  public  a  service  of  superior  value, 
a  service  that  is  much  demanded,  and  that,  on  this  account, 
peddling  is  difficult  to  suppress  or  restrict.  In  accordance 
with  this  view  it  has  been  held  that  the  tax  on  peddlers 
should  be  made  low.  Professor  T.  S.  Adams  held  this 
view  some  years  ago,^  and  J.  W.  Sullivan,  in  "  Markets  for 
the  People,"  urges  that  all  bars  or  restrictions  on  peddling 
be  let  down. 

A  business  tax  is  frequently  levied  upon  certain  classes 
of  individuals,  particularly  those  engaged  in  certain  pro- 
fessions which  might  otherwise  escape  payment  of  taxes. 
For  example,  a  lawyer  might  enjoy  a  handsome  income,  but 
have  no  assessable  property  that  an  ordinary  tax  could  be 
collected  upon.  A  business  or  professional  tax  would  be 
the  means  of  making  him  pay  a  direct  contribution  to  the 
public  funds.  The  tax  on  peddlers,  already  referred  to,  is, 
in  a  certain  sense,  such  a  tax  also.  Justice  is  preserved 
between  the  local  merchant  who  must  pay  property  taxes  and 
the  itinerant  peddler  who  has  nothing  taxable  under  the 
general  property  tax  as  ordinarily  administered,  by  assess- 
ing the  peddler  a  special  license  fee  or  tax. 

The  following  quotation  from  the  Cyclopedia  of  Law 
and  Procedure  ^  will  give  some  idea  of  the  scope  of  the 
business  tax,  and  the  number  and  kinds  of  businesses  and 

14  Hollander,   "  Studies  in    State  Taxation,"   pp.   45—51. 

5  Vol.    25,    pp.    614-621.  - 


342 


ECONOMICS  OF  RETAILING 


occupations  that  may  lawfully  be  subjected  to  a  business 
tax. 

As  proper  subjects  for  license  or  tax  the  following  occupations  or 
privileges  have  been  sanctioned  by  the  court.  Any  commercial  or  pro- 
fessional business;  corporate  franchises  and  privileges;  dealing  in 
"futures";  the  keeping  and  use  of  animals;  the  keeping  of  billiard  or 
pool  tables  for  profit;  the  keeping  of  bowling  alleys;  keeping  concert 
and  dancing  halls;  keeping  laundries;  keeping  a  restaurant;  mechanical 
trades  and  pursuits  in  general ;  mercantile  business  in  general ;  publish- 
ing a  newspaper ;  raising  or  grazing  sheep ;  sales  of  goods ;  sales  on 
exchanges;  selling  certain  publications;  selling  foreign  merchandise; 
selling  newspapers;  selling  to  employees  or  tenants;  theatres  and  shows; 
vehicles  and  means  of  transportation  in  general ;  vehicles  used  in  carry- 
ing passengers  or  property  for  hire  or  profit ;  vehicles  used  by  merchants 
or  manufacturers  in  their  own  private  business;  and  vessels.  And 
among  the  persons  whose  occupations  have  been  declared  to  be  properly 
subject  to  license  or  tax  are  the  following:  architects;  attorneys;  auc- 
tioneers; bakers;  banks;  bill  posters;  brewers;  bridge  companies; 
brokers;  carriers;  cigar  and  tobacco  dealers;  confectioners;  corpora- 
tions; dairymen;  dealers  in  or  sellers  of  oleomargarine;  dealers  in 
second-hand  goods ;  dealers  in  trading  stamp  enterprises ;  dentists ; 
detectives ;  domestic  corporations ;  druggists  ;  drummers  and  canvassers  ; 
emigrant  agents;  employment  agents;  express  companies;  factors  and 
brokers ;  farriers ;  ferries ;  foreign  corporations ;  foreign  insurance  com- 
panies; grocery  dealers;  hawkers  and  peddlers;  hospitals;  ice  dealers; 
inn  keepers ;  insurance  brokers  or  companies ;  itinerant  merchants  or 
traders;  junk  dealers;  dealers  in  second-hand  goods;  keepers  in  gaming 
houses;  liquor  dealers;  livery  stable  keepers;  lumber  dealers;  manufac- 
turers ;  meat  dealers ;  merchants ;  milk  dealers ;  money  lenders ;  note 
shavers ;  packers  and  carriers  of  oysters ;  patent  medicine  venders ; 
pawnbrokers;  persons  dealing  in  food;  pharmacists;  photographers; 
physicians  and  surgeons ;  pilots ;  pipe  line  companies ;  sewing  machine 
agents ;  soda  water  dealers ;  steamship  companies ;  street  railroad  com- 
panies; teachers;  telegraph  and  telephone  companies;  turnpike  com- 
panies ;  venders  of  lottery  tickets ;  warehousemen ;  water  companies ;  and 
wood  dealers. 

The  methods  of  assessing  the  amount  of  the  license  or 
business  tax  vary  greatly  and  it  is  more  than  likely  that  the 
success  of  business  taxation  is  modified  by  the  kind  of 
base  or  basis  selected  in  administering  the  tax.  The  fol- 
lowing methods  are  current : 


r 


PUBLIC  REGULATION  343 

1.  In  proportion  to  the  average  value  of  the  stock 
in  trade  or  equipment  for  doing  business. 

2.  In  proportion  to  the  annual  purchases. 

3.  In  proportion  to  the  total  sales,  gross  receipts,  or 

income.     This  is  virtually  an  income  tax  applied 
to  businesses. 

4.  In  proportion  to  gross  profits  variously  defined. 

5.  In  proportion  to  net  or  divided  profits. 

6.  In  proportion  to  the  rental  value  of  the  properties 

used  by  the  business. 

7.  A  fixed  amount  upon  an  occupation. 

8.  A  fixed  amount  upon  an  occupation  based  upon  the 

size  of  the  town,  or  upon  other  trade  advantages. 

9.  A  progressive  rate  based  upon  the  volume  of  the 

business. 
10.  A  progressive  rate  based  upon  the  number  of  lines 
of  goods  handled,  as  for  example  on  department 
stores. 

In  some  of  its  forms  at  least,  the  business  tax  is  easy 
to  levy  and  easy  to  collect.  Naturally  it  has  been  widely 
used  for  fiscal  as  well  as  for  regulative  purposes.  It  has 
often  served  countries  as  well  as  municipalities  in  times  of 
financial  stress.  In  some  countries,  as  for  example,  in 
France,  Prussia,  and  Canada  the  business  tax  occupies  an 
important  place  in  the  fiscal  machinery  of  the  government. 
In  many  parts  of  the  United  States,  it  supplies  important 
additions  to  the  public  funds.  Brief  descriptions  follow 
of  the  French,  Prussian,  and  Canadian  systems. 

In  France,  the  business  tax  (patente)  was  first  collected 
in  1791  and  has  been  continued  down  to  the  present,  but 
with  many  modifications.  Practically  all  persons  employed 
in  gainful  occupations  are  called  upon  to  contribute.  The 
method  in  which  it  is  apportioned  is  somewhat  complex. 


344 


ECONOMICS  OF  RETAILING 


Part  of  it  is  fixed  in  amount,  depending  upon  the  kind  of 
business,  the  number  of  employees,  if  a  department  store  or 
other  like  concern,  the  population  of  the  community  served, 
and  some  other  considerations.  The  other  part  of  the  tax 
is  variable  and  is  dependent  in  amount  upon  the  rental  value 
of  the  property  used  by  the  business.^ 

Prussia  followed  France's  example  and  enacted  a  law 
for  a  similar  tax  (gewerbesteuer)  in  1810.  But  the  present 
basis  of  the  Prussian  tax  is  in  all  cases  either  the  annual 
profits  or  the  capital  of  the  individual  business.  Wherever 
it  is  possible  to  determine  the  earnings  or  profits,  these  are 
taken  as  the  base,  but  where  such  information  is  not  avail- 
able, the  capital  value  is  taxed.  The  amount  of  the  tax 
placed  on  the  capital  value  is  made  to  correspond  as  nearly 
as  possible  to  the  amounts  collected  upon  the  basis  of  earn- 
ings or  profit  from  concerns  with  the  same  capitalization. 
The  Prussian  tax  is  essentially  a  tax  on  the  profits  of  busi- 
ness or  industry."^ 

In  1896  Prussia  passed  a  law  laying  a  special  business 
tax  on  department  stores.  Three  years  later  Bavaria  did 
likewise.  The  French  business  tax,  just  referred  to,  had 
already  been  applied  to  such  institutions.  The  German 
statutes  were  enacted  in  response  to  a  cry  for  help  from  the 
small  dealers  who  were  losing  ground  in  competition  with 
the  new  and  rapidly-growing  department  stores.  The  acts 
were  aimed  to  check  these  institutions  and  to  protect  the 
small  shop-keepers.  A  department  store  was  defined,  and 
a  progressive  tax  laid  on  sales  amounting  to  more  than 
400,000  marks  per  year.  The  amount  of  the  tax  levied  by 
Prussia  on  department  stores  is  comparatively  small.  Be- 
ginning with  one-half  of  1  per  cent  for  sales  of  400,000 
marks,  the  rate  increases  as  the  sales  increase  up  to  a  maxi- 

6  Bullock,    "  Selected   Readings   in   Public    Finance,"    pp.    321-328. 

7  Id.,   pp.   328-336. 


PUBLIC  REGULATION 


345 


mum  of  3  per  cent  of  sales.  No  store,  no  matter  how  great 
its  sales  may  be,  is  required  to  pay  a  greater  percentage 
than  this.  The  French  method  of  taxing  department  stores 
differs  from  the  German  method  in  that  the  number  of  em- 
ployees, rather  than  the  volume  of  sales,  serves  as  the  basis 
upon  which  the  tax  rate  is  progressively  increased.^ 

In  Canada,  the  Province  of  Ontario  levies  a  tax  on 
business  proportional  to  the  rental  value  of  the  property  in 
use ;  but  there  is  a  rating  of  businesses  so  that  the  retailers 
pay  on  25  per  cent,  wholesalers  on  75  per  cent,  manufac- 
turers on  60  per  cent,  and  manufacturers  and  wholesalers 
of  liquors  on  150  per  cent  of  this  rental  value.  As  between 
retailers  and  wholesalers,  the  theory  is  that  retail  stores 
occupy  so  much  more  valuable  land  than  wholesale  stores 
that  this  should  be  taken  into  account  in  fixing  the  tax.  In 
Winnipeg,  retail  stores  were  assessed  from  1893  to  1906  at 
the  rate  of  about  three  cents  per  square  foot  of  store  floor 
space.  The  act  providing  for  this  assessment  did  not  prove 
entirely  satisfactory,  and  in  1906  a  change  was  made  to  the 
Ontario  plan.^  / 

In  the  United  States  the  Federal  Government  has  at 
various  times  resorted  to  business  taxation,  particularly  dur- 
ing times  of  financial  need.  For  example,  in  1863,  there 
was  laid  a  business  tax  affecting  480  occupations  calling  for 
payments  from  each  of  from  $5  up  to  $500.^^  The  measure 
was  entirely  for  revenue  purposes,  although  certain  busi- 
nesses, such  as  those  that  handled  liquors  and  tobacco,  were 
required  to  contribute  at  higher  rates  than  the  others. 
After  the  war,  the  taxes  were  removed  from  most  busi- 
nesses, and  greatly  reduced  on  liquor  and  tobacco  businesses. 
The  taxes  on  liquor  and  tobacco  dealers  have  continued 

8  Hill,  J.  A.,  "  Taxes  on  Department  Stores,"  Quarterly  Journal  of  Economics, 
15:299-304. 

9  "  International   Conference  on  State  and  Local  Taxation,"  1908,  pp.   286-288. 

10  Redfield,  A.  A.,   "  Handbook  of  the  U.   S,  Tax  Law  of  1862,"  pp.   115-121. 


346  ECONOMICS  OF  RETAILING 

down  to  the  present.  As  these  business  are  almost  univer- 
sally taxed  within  the  states  also,  it  has  not  infrequently- 
happened  that  the  same  business  has  had  to  procure  and  pay 
for  as  many  as  three  or  even  four  licenses  —  Federal,  state, 
county,  and  municipal  —  before  beginning  business. ^^ 

In  1898,  during  the  Spanish  War,  Federal  business  taxes 
were  again  collected,  but  in  this  case,  in  addition  to  liquor 
and  tobacco  businesses,  only  on  bankers,  brokers,  pawn- 
brokers, and  places  of  public  amusement.  After  the  war 
these  latter  were  removed. 

At  the  present  time  business  taxes  form  a  part  of  the 
regular  state  revenue-producing  systems  in  Alabama,  Flor- 
ida, Georgia,  Kentucky,  Louisiana,  Maryland,  Mississippi, 
Missouri,  North  Carolina,  Pennsylvania,  Tennessee,  Vir- 
ginia, and  West  Virginia.  This  list  includes  all  of  the 
Southern  states  except  Texas  which  repealed  all  business 
tax  laws  in  1907,  and  South  Carolina,  which  permits  all 
license  fees  to  go  into  the  county  funds. ^^ 

In  a  considerable  number  of  states  other  than  those 
named,  the  privilege  of  collecting  business  taxes  is  granted 
by  the  state  to  the  municipalities,  and  a  great  number  of  the 
latter  have  availed  themselves  of  this  means  of  increasing 
their  incomes.  By  far  the  greater  portion  of  the  funds 
from  this  tax  never  get  beyond  the  local  public  treasuries 
named. 

"  About  12  per  cent  of  the  state  tax  receipts  in  1902 
came  from  licenses  and  permits,  and  taking  the  state  and 
local  governments  together  the  revenue  from  this  source 
amounted  to  $75,000,000,  of  which  $55,000,000  came  from 
liquor  licenses."  ^^ 

Among  the  larger  cities  in  the  country  where  business 
taxes  are  collected,  the  percentages  of  total  revenues  ob- 

11  Ely,  R.   T.,  "  Taxation  in  American   States  and  Cities,"   p.  203. 

12  "  Wealth,  Debt  and  Taxation,"  Spec.   Report,  U.   S.  Census,  1907. 

13  Ely,  R,   T.,   "  Outlines  of  Economics,"   Revised  Edition,   p.   648. 


PUBLIC  REGULATION  347 

tained  from  this  source,  for  the  year  1907,  were  as  fol- 
lows :  ^* 

Per  Cent 

Kansas  City 18 

Atlanta 12 

Savannah 20 

Norfolk    26 

Charleston    11 

Birmingham 37 

Mobile 30 

Augusta    12 

Montgomery 33 

Jacksonville 26 

Knoxville . . . . .,. .   15 

Macon    18 

In  the  states  where  business  taxation  prevails,  a  great 
number  of  different  occupations  and  businesses  are  taxed. 
The  United  States  Bureau  of  the  Census  enumerated  188 
different  classes  with  several  sub-classifications  in  its  special 
report,  "  Wealth,  Debt,  and  Taxation  "  in  1907.  No  state 
system  includes  all  of  these.  Mississippi  taxed  119  occu- 
pations some  years  ago  ^^  and  Louisiana  has  a  constitutional 
provision  permitting  the  legislature  to  lay  a  tax  on  all  occu- 
pations whatsoever,  except  clerks,  laborers,  clergymen, 
school  teachers,  and  those  engaged  in  mechanical,  agricul- 
tural, horticultural,  and  mining  pursuits,  and  manufacturers 
other  than  those  of  distilled,  alcoholic  or  malt  liquors,  to- 
baccos, cigars,  and  cotton  seed  oil.^^  Many  cities  extend 
the  business  tax  system  even  farther  than  the  states  do. 
Wilmington,  North  Carolina,   formerly  taxed  124  classes 

14  ••  Statistics  of  Cities,"  Special  Report  of  U.  S.  Census,  1908,  from  Table  37. 

15  Hollander,    "  Studies   in    State   Taxation." 

16  Millis,    "  Business   and    Professional    Taxes,"    Journal   of   Political   Economy, 
16:76-87. 


348  ECONOMICS  QF  RETAILING 

of  occupations,  and  Atlanta  enumerated  466  taxable  items 
under  the  head  of  business  taxes. 

Among  the  specific  occupations  or  businesses  taxed, 
saloons  and  liquor  businesses  head  the  list.  There  are  prob- 
ably no  communities  in  this  country  where  saloons  are  not 
licensed  except  where  prohibited  entirely.  Amusements, 
traveling  vendors,  and  auctioneers  follow  next  in  order.  It 
is  evident  that  regulation  is  the  chief  aim  in  taxing  these 
classes.     The  revenue  feature,  however,  is  not  unimportant. 

Who  pays  the  business  tax,  the  retailer  or  the  con- 
sumer? There  is  not  enough  direct  evidence  at  hand  upon 
which  to  base  a  conclusive  answer.  There  is  a  good  deal  of 
disagreement  among  both  economists  and  business  men 
about  the  matter.  According  to  Seligman,^^  under  com- 
petitive conditions,  a  tax  on  profits  tends  in  the  long  run  to 
be  shifted  to  the  consumer,  while  under  monopoly  condi- 
tions, if  the  demand  is  elastic,  and  if  the  monopoly  price 
has  already  been  reached,  the  tax  will  not  be  shifted. 

It  is  common  observation  among  economists  that  a  tax 
of  a  fixed  amount  on  an  occupation  is  generally  not  shifted 
if  the  amount  of  the  tax  be  small.  Practice  has  shown  that 
prices  tend  to  remain  at  customary  levels  after  the  tax  is 
laid.     But  when  the  tax  is  high  it  is  generally  shifted. 

Certainly  such  a  tax  would  be  considered  an  expense  of 
the  business  under  most  mercantile  accounting  systems,  and 
in  fixing  selling  prices,  the  business  tax  would  be  considered 
and,  if  possible,  would  be  prorated  in  some  way  over  all  the 
goods  offered  for  sale.  If  the  concerns  do  not  succeed  in 
getting  the  prices  asked  for  the  goods,  and,  therefore,  have 
to  mark  them  down  to  lower  figures  in  order  to  move  them, 
obviously  the  tax  falls  upon  the  merchant.  But  the  more 
successful  merchants,  it  is  quite  likely,  will  be  able  to  shift 
the  tax,  and  those  who  can  not  do  so  at  one  time  or  in  one 

17  Seligman,  E.  R.  A.,  "  Shifting  and  Incidence  of  Taxation." 


PUBLIC  REGULATION  349 

season  will  seek,  by  making  changes  in  their  stock  or  in  their 
selling  methods,  to  increase  their  net  profits  to  some  cus- 
tomary point  over  and  above  all  expenses  of  the  business, 
including  the  tax. 

The  problem  of  shifting  and  incidence  as  applied  to  most 
businesses  is  exceedingly  complex.  Professor  Seligman's 
analysis,  while  probably  theoretically  correct,  throws  but 
little  light  on  the  concrete  instance.  If  the  retail  store 
manager  finds  that  he  is  not  making  the  usual  profit,  he  may 
blame  his  purchases,  and  seek  to  buy  thereafter  such  goods 
as  will  yield  a  profit  above  all  expenses  of  the  business.  In 
marking  the  prices  on  his  goods,  he  usually  makes  allowance 
for  all  expenses  of  the  business  including  taxes  of  various 
kinds,  and  when  some  goods  cannot  be  sold  for  prices  bear- 
ing the  full  store  burdens,  others  goods  are  selected  and 
priced  so  as  to  make  up  the  deficits.  In  an  ordinary  mer- 
chandise assortment  there  may  be  some  goods  sold  which 
do  not  pay  even  the  direct  expenses  of  handling,  while  others 
may  yield  profits  several  times  the  amount  of  these  expenses. 
Since  there  are  so  many  different  articles  to  be  priced  and 
sold  in  a  retail  store,  since  qualities  and  cost  prices  differ  so 
widely,  and  since  there  are  other  factors  entering  into  retail 
merchandising  besides  price,  such,  for  example,  as  service, 
custom,  and  convenience,  it  is  exceedingly  difficult  to  deter- 
mine whether  a  specific  tax  in  a  specific  instance  is  shifted 
or  not. 

There  are  undoubtedly  some  retailers  who  could  not 
shift  a  business  tax;  namely,  those  on  the  margin  —  those 
barely  able  to  make  ends  meet  before  the  levy  of  such  a 
tax.  Naturally  the  tax,  if  considerable,  would  drive  such 
dealers  over  the  line  into  failure  or  bankruptcy.  In  these 
cases,  however,  the  tax  may  be  considered  only  as  a  last 
straw  to  an  already  overheavy  burden. 

Opponents  of  regulation  by  means  of  business  license 


350 


ECONOMICS  OF  RETAILING 


or  taxation  assert  that  business  taxes  have  the  tendency  to 
overburden  the  small  dealer  while  not  making  much  differ- 
ence to  the  bigger  merchant.  It  is  also  asserted  that  a  busi- 
ness tax,  especially  when  in  the  form  of  a  license,  if  con- 
siderable, makes  it  difificult  for  beginners  to  get  a  start, 
since  such  a  tax  must  be  paid  before  the  business  can  begin 
and  usually  amounts  to  the  same  in  the  early  stages  of  build- 
ing up  a  business  as  it  does  after  the  business  is  well  es- 
tablished. Such  a  tax  also  checks  free  movement  from  one 
occupation  or  business  to  another,  and  therefore  prevents 
individuals  from  seeking  better  opportunities  and  making 
the  most  of  themselves.  A  business  tax,  if  made  heavy 
enough,  unquestionably  reduces  the  number  of  persons  in 
the  particular  business  that  is  taxed. 

Are  these  criticisms  valid  and  important?  That  a  busi- 
ness tax,  if  heavy  enough,  will  tend  to  make  it  more  diffi- 
cult to  enter  the  retail  business  is  admittedly  one  of  the 
reasons  for  such  a  tax.  But  any  means  that  would  effec- 
tually close  the  door  of  opportunity  to  all  who  aspired 
to  become  retailers  in  a  community  would  be  obviously 
unfair  and  unjust,  not  only  to  individuals,  but  also  to  the 
community  itself.  Any  measure  proposing  such  radical  ex- 
clusion should  meet  with  failure.  But  total  exclusion  is  an 
entirely  different  matter  from  a  limited  regulation  of  the 
number. 

It  is  held  by  those  who  favor  regulation  that  the  busi- 
ness tax,  if  used  to  limit  the  number  of  persons  who  may 
engage  in  retailing,  will  simply  eliminate  those  who  are  now 
nearest  the  margin  and  not  the  successful  concerns,  presum- 
ably managed  by  those  best  fitted  for  the  work.  It  may 
be  questioned  seriously  whether  an  absolutely  unrestricted 
freedom  of  entering  any  business  is  an  unqualified  benefit 
either  to  the  persons  entering  or  to  the  general  public.  So 
far  as  the  retail  business  is  concerned,  such  freedom  en- 


PUBLIC  REGULATION  351 

courages  persons  without  the  necessary  ability,  training,  or 
capital  to  rush  in  and  waste  their  energies  and  substance, 
and,  after  their  failure,  to  be  followed  by  a  stream  of  other 
incompetents.  Among  the  results  of  this  course  of  events 
is  a  constant  disorganization  of  the  retail  business,  frequent 
occurrences  of  unfair  competition,  and  generally  unsatis- 
factory service  to  the  public. 

Professor  Seager  argues  for  the  business  license  system 
as  follows: 

Retail  trade,  whether  in  Hquors,  or  in  drugs,  milk,  ice,  groceries, 
provisions,  or  even  merchandise,  is  strikingly  wasteful  when  exposed  to 
the  eflFects  of  an  unregulated  competition.  The  needless  multiplication 
of  stocks  and  selling  places,  the  reckless  entry  into  the  field  of  men 
with  little  capital  and  less  experience  due  to  the  feeling  that  "  any  one 
can  keep  a  store,"  and  the  losses  which  result  owing  to  the  fact  that 
only  competent  persons  can  make  store-keeping  pay,  the  costly  duplica- 
tion of  distributing  machinery  —  all  these  aspects  of  retail  trade  supply 
telling  arguments  against  a  competitive  organization  of  industry.  The 
high  license  system,  although  not  primarily  intended  for  that  purpose, 
substitutes  regulated  for  unregulated  competition.  It  is  believed  to  be 
within  the  truth  to  claim  that  more  than  half  of  the  revenue  that  the 
government  derives  from  license  taxes  is  wealth  that  without  the 
moderate  regulation  the  system  imposes  would  have  been  wasted  in  vain 
competition.  The  incidence  of  the  remainder  of  the  tax  is  similar  to 
that  of  excise  or  customs  taxes.  In  the  case  of  liquor  licenses  a  part 
of  it  is  probably  borne  by  the  holder  of  the  license  and  part  of  it  by 
the  consuming  public  in  the  slightly  higher  prices  they  are  required  to 
pay  for  the  same  quantity  and  quality  of  liquor.^^ 

Experience  with  it  (the  liquor  license)  in  operation  has  made 
prominent  certain  economic  advantages  which  suggest  the  desirability 
of  applying  it  to  many  other  branches  of  trade.  The  selling  and  distri- 
bution of  milk,  ice,  groceries,  provisions,  etc.,  admit  of  even  larger 
savings  through  the  concentration  of  management  brought  about  by  the 
high  license  system  than  the  selling  and  distribution  of  liquors.  These 
businesses  offer  a  large  and  practically  untouched  field  for  the  tax 
gatherer  and  just  as  the  payment  of  high  licenses  has  served  neither 
to  make  the  saloon  business  unprofitable  nor  to  compel  the  consumer  to 
pay  much  more  for  his  beer  and  whisky  so  it  is  believed  that  the  pay- 
ment of  high  license  by  milk  dealers,  ice  companies,  grocers,  butchers, 
etc.,  would  serve  merely  to  concentrate  these  businesses  into  fewer  and 

18  Seager,   "  Introduction  to  Economics,"  pp.   560-561. 


352 


ECONOMICS  OF  RETAILING 


more  competent  hands  without  appreciably  raising  the  prices  of  the 
commodities  sold.  By  extending  its  license  system  to  include  these  and 
other  businesses,  every  state  in  which  large  cities  are  found  could  put 
itself  in  a  position  to  dispense  with  the  returns  from  the  general 
property  tax.^^ 

That  the  business  tax  does  under  most  circumstances 
limit  competition,  especially  if  made  high  enough,  has  been 
proved  by  experience.  For  example,  the  German  depart- 
ment store  tax  laid  for  the  purpose  of  checking  the  growth 
of  the  department  stores  in  order  to  help  the  small  shop- 
keepers has,  according  to  reports,  resulted  in  considerable 
benefit  to  the  department  stores  themselves  by  discouraging 
other  firms  from  entering  the  field  and  thus  giving  the  stores 
already  in  existence  control  over  the  entire  trade.^^  Many 
other  examples  of  the  restriction  of  competition  could  be 
drawn  from  all  parts  of  this  country  wherever  the  license 
tax  has  been  employed.  In  some  cases  the  increase  of  vol- 
ume in  business  and  the  resulting  increase  in  profits  accru- 
ing to  the  remaining  firms  who  pay  the  tax  have  been  suf- 
ficient to  make  entirely  unnecessary  any  increase  in  prices 
of  the  goods  sold  to  the  consumers. 

If  regulation  of  the  retail  business  is  to  be  attempted, 
no  other  plan  suggested  so  far  seems  so  easy  to  apply  as 
a  license  system.  Through  its  use  the  number  of  retailers 
could  be  limited,  and,  if  thought  best,  certain  qualifications 
necessary  for  efficient  retailing,  such  as  knowledge,  expe- 
rience, and  a  minimum  amount  of  necessary  capital  could 
be  required.  Regulation  might  be  carried  still  further 
through  this  means,  as  for  example,  setting  standards  of 
service,  and  supervising  price-fixing.  It  is  not  urged  that 
all  of  these  measures  are  either  necessary  or  desirable,  but, 

19  Seager,  "  Introduction   to   Economics,"   p.    584. 

20  Gehring,   Hans,   "  Die  Warenhaussteuer  in  Preussen,   Ein  Beitrag  zur   Kau- 
mannischen  Mittelstandspolitik,"  1905,  pp.  65-72. 


PUBLIC  REGULATION 


353 


simply,  that  the  degree  of  regulation  may  not  be  confined  by 
anything  but  the  demands  of  public  policy  under  this 
method. 

It  is  probable  that  certain  gains  would  accrue  to  the 
public  from  a  limited  regulation  and  supervision  of  the 
retail  business.  It  is  certain  that,  in  many  localities,  the 
retailers  themselves  would  be  much  benefited  by  such  regu- 
lation. Much  of  the  capital  and  energy  now  wasted  in 
senseless  competition  could  then  be  turned  into  channels  of 
service  to  the  consumer.  Regulation  would  tend  to  insure 
to  the  dealer  a  fair  return  for  his  service.  At  the  present 
time,  under  the  competition  found  in  many  places,  the  busi- 
ness not  only  does  not  pay  a  fair  wage  to  those  who  are 
engaged  in  it,  but  is  supported  in  part  at  least  by  the  returns 
from  other  industries.  The  capital  used,  it  seems,  is  largely 
accumulated  from  other  fields,  and  the  wages  paid  to  em- 
ployees is  in  many  cases  so  low  as  to  make  it  necessary  for 
the  younger  employees,  at  least,  to  depend  for  part  of 
their  support  upon  their  homes.  In  other  words,  present 
competition  has  made  the  retail  business  partly  parasitic. 
This  condition,  so  far  as  it  prevails,  is  essentially  evil. 
Each  industry  should  stand  on  its  own  feet,  pay  its  own 
way,  provide  for  its  own  emergencies  and  risks,  and  be  the 
source  of  the  capital  necessary  to  make  extensions.  If 
regulation  is  established,  these  matters  would  have  to  be 
considered,  and  the  parasitic  element  would  probably  be 
eliminated. 

There  are  large  dif^culties  in  the  way,  however,  for 
legal  regulation  of  the  retail  business  in  this  country.  It 
would  probably  have  to  be  accomplished  under  the  exercise 
of  the  state's  police  power.  In  order  to  invoke  this  power 
it  must  first  be  shown  that  such  regulation  is  necessary. 
For  example,  "  To  license  plumbing  it  must  be  shown  that 


354  ECONOMICS  OF  RETAILING 

this  will  tend  to  promote  the  public  health,  morals,  safety, 
comfort,  or  welfare,  or  to  suppress  disease."  ^^  In  some 
cases  it  might  prove  quite  difficult  to  demonstrate  the  need 
of  such  regulation  in  the  face  of  the  court  precedents  of  the 
past.  To  illustrate,  *'  A  tax  on  department  stores  can  not 
be  shown  to  be  such  (necessary  to  promote  the  public  health, 
safety,  comfort  or  welfare),  hence  cannot  be  sustained 
under  the  police  power."  22 

The  Missouri  law  under  which  the  case,  just  quoted 
from,  came  to  the  supreme  court  of  that  state  was  in  many 
respects  similar  to  the  German  department  store  law,  but 
this  decision  declared  it  unconstitutional  on  the  grounds  that 
such  an  act  was  unnecessary,  unfair,  and  constituted  class 
legislation. 

Some  economists  have  also  taken  a  view  opposed  to  such 
regulation  and  taxation.  In  his  work  on  "  Shifting  and 
Incidence  of  Taxation,"  ^^  Professor  Seligman  speaks  of 
the  effects  of  the  German  law  in  restricting  competition  and 
takes  the  position  that  such  a  result  would  be  undesirable 
in  this  country. 

Without  special  legislation  there  is  little  hope  for  any 
form  of  regulation  of  retail  businesses.  Courts  have  held 
a  position  quite  consistently  opposed  to  any  interference  of 
the  public  with  ordinary  retail  establishments. 

"  It  would  be  illegal  for  a  city  to  create  a  monopoly  by 
granting  an  exclusive  license  to  a  single  party."  ^^ 

''  Taxation  cannot  be  used  for  the  purpose  of  building 
up  monopolies.  Taxation  of  business  and  license  taxes  are 
peculiarly  liable  in  this  direction,  especially  if  they  under- 
take to  limit  the  number  to  whom  permits  shall  be  given."  ^^ 

In    certain    instances,    however,    both    legislatures    and 

21  Wilkie  V.  Chicago,  188  111.  444. 

22  State  V.  Ashbrook,  154  Mo.  375. 

23  Pages  361,  362. 

24  "  American   and   English   Encyclopedia   of   Law,"   Vol.   21:784. 

25  "  Cooley  on  Taxation,"   Vol.   1:409,   410. 


PUBLIC  REGULATION 


355 


courts  have  departed  entirely  from  their  theories  of  free 
competition.  At  one  time  it  was  thought  essential  in  order 
to  keep  alive  competition  among  railways  between  two 
points,  to  have  two  or  more  companies  in  a  municipality  sell- 
ing gas,  water,  light,  telephone,  or  transportation  services. 
But  the  wastes  involved  in  such  competition  have  become 
apparent  to  all,  and  these  now  constitute  exceptions  to  the 
mle  of  freedom  in  business. 

If  it  could  be  shown  generally  and  conclusively  that 
regulation  of  the  retail  business  would  be  a  distinct  benefit 
to  the  public,  the  first  step  towards  the  establishment  of 
such  a  system  could  soon  be  accomplished.  But  it  must 
be  admitted  that  such  regulation  cannot  at  present  be  shown 
to  be  necessary,  for  the  reason  that  the  evidence,  even  if 
existent,  is  not  available.  Many  think,  or  believe,  or  feel, 
that  such  regulation  would  be  a  benefit,  but  such  thoughts, 
beliefs,  or  feelings  are  not  the  influences  by  which  either 
legislative  or  judicial  opinion  might  or  should  be  swayed. 
The  first  step  to  be  taken  in  the  settlement  of  the  problem 
in  either  one  way  or  the  other  would  be  a  thorough  inves- 
tigation of  the  retail  business  by  the  states,  or,  better  still 
by  the  national  government,  to  determine  just  where  and 
what  the  wastes  in  retail  distribution  are.  From  the  infor- 
mation thus  gathered,  judgment  could  more  readily  be 
passed  as  to  the  need  of  public  regulation. 

In  conclusion,  the  following  points  should  be  noted : 

First.  If  the  retail  business  is  to  be  regulated,  the 
business  tax  or  license  system  seems  to  offer  the  simplest 
approach  to  the  matter. 

Second.  A  business  tax  is  an  effective  means  of  secur- 
ing money  for  government  purposes.  There  is  as  much  to 
commend  it  for  this  purpose  as  for  regulation. 

Third.  Judging  from  the  conditions  that  are  apparent 
in  retailing,  it  would  seem  desirable  for  the  public  to  exer- 


356  ECONOMICS  OF  RETAILING 

cise  some  regulative  power  over  retail  stores.  This  regula- 
tion, if  widely  applied,  would  be  fully  as  beneficial  to  the 
retailers  as  to  the  public. 

Fourth.  As  a  first  step,  before  any  measures  are  taken 
for  general  regulation  of  any  kind,  a  thorough-going  inves- 
tigation is  needed  to  determine  the  exact  character  of  the 
problems  to  be  solved. 

A  Selected  List  of  References  on  Business  Taxation 

Ely,  R.  T.    Outlines  of  Economics,  pp.  648-649. 

Ely,  R.  T.  Taxation  in  American  States  and  Cities,  pp.  203-209  and 
280-286. 

Seager,  H.  R.    Introduction  to  Economics.     (See  Index  therein.) 

Bullock,  C.  J.     Principles  of  Economics.     (See  Index  therein.) 

Bullock,  C.  J.    Selected  Readings  in  Public  Finance,  pp.  321-349. 

Bastable,  C.  F.     Public  Finance,  1895,  pp.  425-431. 

Cohn,  G.    The  Science  of  Finance,  1895,  pp.  482-484. 

Seligman,  E.  R.  A.     Shifting  and  Incidence  of  Taxation,  pp.  338-366. 

Seligman,  E.  R.  A.  Finance  Statistics  of  American  Commonwealths. 
American  Statistical  Assoc.,  1889. 

Cooley  on  Taxation.  3rd  Edition  (legal  work),  Ch.  XVIII,  "Taxa- 
tion of  Business  and  Privilege." 

U.  S.  Census,  Special  Reports : 

Wealth,  Debt,  and  Taxation,  1907. 
Statistics  of  Cities,  1908.     (Table  35.) 

Hollander,  J.  H.    Studies  in  State  Taxation,  Vol.  18  in  Johns  Hopkins 
University  Studies  in  Historical  and  Political  Science: 
Adams,  T.  S.     Maryland,  pp.  45-51. 
Barnett,  G.  E.     North  Carolina,  pp.  92-97. 
Brough,  C.  H.     Mississippi,  pp.  206-212. 
Schmeckelbier,  L.  F.     Georgia,  pp.  243-248. 

Millis,  H.  A.  Business  and  Professional  Taxes.  Journal  of  Political 
Economy,  16:76-87. 

Hart,  W.  O.  License  System  in  Louisiana.  International  Conference 
on  State  and  Local  Taxation,  1909,  p.  275  ff. 

Forman,  J.  C.  Business  Assessments  as  a  Substitute  for  the  Personal 
Property  Tax.  International  Conference  on  State  and  Local  Taxa- 
tion, 1908,  pp.  273-283. 

Hill,  J.  A.  Taxes  on  Department  Stores.  Quarterly  Journal  of  Eco- 
nomics, 15:299-304. 

Adams,  H.  C.    The  Science  of  Finance,  1899,  pp.  377-385. 


CHAPTER  XX 

THE  IDEAL  RETAILING  SYSTEM 

One  of  the  most  noteworthy  ideas  that  results  from  a 
study  of  the  present  retaiHng  system  with  all  its  complex- 
ities, is  that  it  is  a  product  of  an  evolution  extending  back 
over  a  great  many  years,  and  that  during  all  the  intervening 
time  there  has  gone  on  a  steady,  relentless  elimination  of 
all  forms  of  distribution  found  uneconomical.  In  view  of 
this,  if  for  no  other  reason,  it  is  to  be  presumed  that  there  is 
a  proper  economic  place  for  each  form  of  retail  distribution 
now  in  existence.  Department  stores,  specialty  stores,  and 
mail  order  houses,  all  perform  economic  functions.  Each 
serves  in  a  part  of  the  field  of  distribution  not  entirely 
covered  by  the  other  types  of  institutions.  So  long  as  the 
general  problem  of  distribution  remains  the  same  as  it  is  at 
present,  each  of  these  classes  is  here  to  stay.  It  is  even 
likely  that  new  types  not  yet  developed  will  also  find  their 
way  into  the  system.  The  difficulties  that  exist  among  them 
are  probably  due  to  a  lack  of  adjustment  of  each  type  to 
its  proper  field,  rather  than  to  anything  more  fundamental. 
Much  of  the  friction  may  be  reduced  in  the  course  of  time. 

Changes  in  retailing  methods  must  proceed  slowly,  for 
no  change  can  be  made  successfully  without  the  co-opera- 
tion, or  at  least  the  acquiescence,  of  the  people.  The  peo- 
ple are  the  final  arbiters,  and  no  system  of  distribution  can 
succeed  unless  the  people  are  in  favor  of  it  in  both  con- 
scious thought  and  unconscious  habit.  Whatever  there  is 
of  value  in  past  experience,  therefore,  should  be  saved  and 

357 


358  ECONOMICS  OF  RETAILING 

put  to  use  in  present  and  future  practice.  It  is  probable 
that  the  most  substantial  progress  in  retailing  in  the  future 
will  be  the  result  of  gradual  changes,  and  careful  adapta- 
tions of  one  thing  at  a  time  to  suit  new  needs,  rather  than 
the  result  of  rapid  evolutions  from  old  into  new  and  entirely 
untried  plans. 

The  fact  that  the  present  system  is  a  product  of  evolu- 
tion is  presumptive  proof  that  it  is  far  from  perfect.  Evo- 
lutionary movement  is  always  preceded  by  necessity.  Con- 
ditions demand  a  readjustment  long  before  the  readjust- 
ment takes  place,  and  it  is  only  at  times  that  are  relatively 
stable  or  unprogressive  that  it  may  be  said  that  the  neces- 
sary readjustments  actually  or  approximately  catch  up  with 
the  needs.  Since  the  distributive  system  is  conditioned 
on  the  one  hand  by  the  methods  of  production,  and  on  the 
other  by  the  standards  of  living  of  the  consumers,  it  is 
only  during  long  periods  of  relatively  fixed  methods  of 
production  and  relatively  fixed  standards  of  living  that  dis- 
tributing systems  work  smoothly  and  satisfactorily.  But 
at  the  present  time,  and  during  the  years  just  passed  neither 
methods  of  production  nor  standards  of  living  have  been 
fixed  or  stable.  Consequently,  the  system  of  distribution 
has  been  and  is  under  the  necessity  of  change.  Not  that 
any  particular  form  of  retailing  is  foreordained  to  succeed 
over  others,  but  the  new  conditions  demand  readjustments 
of  some  kind,  and  those  that  fit  the  conditions  most  ade- 
quately are  destined  to  the  greatest  development. 

There  is  a  demand,  potential  at  least,  at  the  present  time 
for  a  retailing  system  that  will  supply  each  community  with 
what  the  people  want,  in  the  way  that  they  want  it,  when 
they  want  it,  and  at  the  lowest  possible  cost.  What  is  de- 
manded is  that  the  retailer  and  his  employees  must  be  whole- 
hearted servants  of  the  people.  Upon  this  ground  only  can 
the  retailer's  wage,  called  his  profit,  be  justified.     Profit  or 


THE  IDEAL  RETAILING  SYSTEM 


359 


wage  of  any  kind  without  service  in  return  is  graft.  This  is 
a  fundamental  principle  to  which  all  business  must  sooner  or 
later  conform. 

In  an  ideal  system  of  retail  distribution,  the  salesman 
must  be  able  to  perform  an  expert  service;  in  other  words, 
the  salesman  must  be  a  specialist  in  his  field.  It  does  not 
seem  too  much  to  say  that  the  grocery  salesman  must  be  a 
food  specialist,  well  versed  in  dietetics,  food  values,  and 
food  preparation.  The  dry-goods  and  clothing  salesman 
must  be  a  textile  and  style  expert.  The  shoe  salesman  must 
be  a  specialist  on  fitting  feet  for  comfort,  for  service,  and 
for  appearance. 

The  store  equipment  must  be^ch  as  to  facilitate  the 
best  service,  and  by  best  sa|^(?is  meant  speed,  cleanliness, 
correct  weights  and  mealffes,  the  saving  of  labor,  and  the 
elimination  of  leaks  and  wastes.  People  are  coming  to  ex- 
pect that  the  corner  grocer  shall  not  only  be  honest  and  intel- 
ligent concerning  his  goods,  but  that  he  shall  make  his 
place  of  business  accord  with  the  best  standards  of  the 
community  as  to  architecture  and  sanitary  arrangements. 
Light,  air,  and  cleanliness  are  modern  demands  for  every 
structure  used  by  people  and  must  not  be  neglected  by 
modern  store  owners.  Fixtures  that  are  not  only  useful  in 
every  way  but  also  artistically  appropriate  in  line  and  design 
add  to  the  customer's  satisfaction. 

Either  every  store  should  have  its  own  laboratory  or 
testing  room  with  full  equipment  for  making  tests  of  all 
goods  handled,  so  that  what  is  told  to  the  customers  about 
the  goods  may  be  the  results  of  personal  observation  or 
knowledge;  or  such  a  laboratory  should  be  supplied  by  each 
municipality  in  which  the  necessary  tests  could  be  made  for 
all  stores.  Every  salesman  should  be  well  versed  in  all 
known  tests  applicable  to  his  particular  line. 

The  interest  of  the  public  in  the  distribution  of  goods 


360  ECONOMICS  OF  RETAILING 

is  such  that  a  certain  amount  of  supervision  and  regulation 
seems  necessary,  as  for  example,  the  setting  of  standards 
for,  and  the  inspection  of  foods,  drugs,  food  stores,  weights 
and  measures,  and  so  on.  In  some  states  legislation  has 
been  specifically  enacted  against  untruthful  advertising. 
Such  laws  seem  desirable,  and  it  is  probable  that  other  states 
will  take  similar  action.  The  rule  "  caveat  emptor  "  is  pass- 
ing. In  its  stead  the  seller  is  coming  to  be  held  responsible 
for  all  of  his  statements.  Competition  forces  this  in  the 
long  run,  but  the  difficulty  arises  with  short-sighted  dealers 
and  with  fly-by-night  concerns  that  expect  to  sell  a  cus- 
tomer only  once.  Dishonesty  in  such  quarters  must  be 
checked,  and  to  this  eiM,  a  good  "  truthful-advertising  law  " 
will  be  found  helpful.  The  administration,  or  the  respon- 
sibility for  the  administration,  of  such  a  law  should  rest 
with  the  retailers  themselves.  No  one  is  hurt  by  dishonest 
advertising  any  more  than  the  dealer  who  is  trying  to  do 
business  on  honest  lines,  and  who  hopes  for  continued  pat- 
ronage from  the  same  customers.  Retailers  as  a  class 
would  be  more  interested  to  see  such  laws  carefully  enforced 
than  any  other  group  of  citizens.  In  the  matter  of  truth- 
ful advertising  as  well  as  in  every  other  reform,  the  motive 
for  progress  should  come  from  within  the  group  rather  than 
from  without.  Supported  by  the  good  opinion  of  the  more 
influential  members  of  the  group  of  retailers,  the  law  will 
be  effectually  observed.  Without  this  support,  it  is  likely 
to  be  evaded  if  not  neglected  entirely. 

It  has  been  proposed  in  various  quarters  that  retailers 
should  be  licensed,  their  numbers  regulated,  and  their 
standards  defined  publicly.  There  are  many  legal  objec- 
tions to  such  a  course  and  no  precedents  exist  for  such  a 
regulation  of  ordinary  retail  businesses  in  this  country. 
Aside  from  the  practical  difficulties  of  carrying  out  such  a 
plan,  there  is  not  yet  a  sufficient  amount  of  general  knowl- 


THE  IDEAL  RETAILING  SYSTEM  361 

edge  about  the  problems  of  retail  distribution  to  warrant 
the  public  in  taking  a  decided  stand  upon  any  point  that 
might  be  affected  by  regulation.  Obviously  the  public 
should  know  where  it  is  going  before  it  starts.  Regulation 
may  be  very  desirable,  and  und^tedly  is,  but  at  the  present 
stage  of  our  knowledge  about  the  work  of  retailing,  it  is  far 
from  clear  that  any  satisfactory  method  of  regulation  could 
be  devised  without  a  great  many  preliminary  trials  and 
errors.  The  problems  of  distribution  are  too  big  and  too 
complex  to  be  solved  by  simple  formulas.  Unless  wisely 
administered,  public  regulation  would  be  as  likely  to  prove 
harmful  as  helpful.  Establishing  regulation  without  suffi- 
cient preliminary,  impartial  investigation  might  result  in  too 
expensive  experimentation. 

As  has  been  pointed  out  in  a  preceding  chapter,  there 
has  been  a  decidedly  great  development  of  chain  stores  of 
various  kinds  in  this  country  during  the  last  score  of  years. 
A  number  of  these  chain  systems  have  been  established 
solely  because  of  friction  in  the  regular  channels  of  distri- 
bution. Manufacturers  who  have  had  trouble  with  retailers 
and  jobbers  over  such  problems  as  price-cutting,  substitu- 
tion, and  refusals  to  handle  the  goods  at  all,  have  felt 
obliged  to  establish  outlets  of  their  own.  Thus,  there  have 
grown  up  in  this  country,  as  well  as  in  the  European  coun- 
tries, a  number  of  manufacturers'  and  jobbers'  chain-store 
systems,  of  exclusive  agencies,  of  "  tied  shops,"  and  of 
various  other  complex  arrangements  in  which  the  distribu- 
tion of  goods  from  the  producers  to  the  consumers  is  car- 
ried out  of  its  regular  channels.  If  occasion  for  such 
friction  is  to  continue,  it  seems  certain  that  these  independ- 
ent and  special  distributive  agencies  must  multiply.  It  is 
even  possible  that  in  the  course  of  time  these  special  agencies 
may  take  the  place  of  the  regular  stores  entirely. 

Whatever  the  future  may  bring,  it  does  not  seem  that 


362  ECONOMICS  OF  RETAILING 

this  development  of  multitudes  of  special  distributive  sys- 
tems is  to  be  desired.  In  the  first  place,  the  most  obvious 
result  is  a  duplication  of  distributive  agencies  that  are  al- 
ready in  existence.  In  so  far  as  the  present  agencies  are 
inadequate  to  handle  any  given  type  of  business,  the  estab- 
lishment of  the  special  type  is  socially  justifiable.  But 
where  the  special  distributive  system  is  established  in  the 
face  of  the  fact  that  present  systems  are  quite  sufficient,  one 
may  well  pause  before  giving  an  unqualified  approval. 
Such  duplication  means  waste  that  in  many  cases  consumes 
all,  and  more  than  all,  of  the  gains  made  through  the  new 
arrangement.  Wealth  dissipated  in  duplicating  distributive 
systems  already  in  existence  is  lost  not  only  to  the  indi- 
vidual who  advances  it,  but  also  to  society;  since  if  it  were 
otherwise  productively  employed  there  would  be  an  increase 
of  useful  products  or  services  for  society. 

A  second  reason  for  doubting  the  good  of  the  movement 
towards  chain  stores  and  other  special  distributive  agencies 
is  that  such  systems,  although  established  in  many  cases  in 
self-defense,  have  a  tendency  after  they  reach  large  propor- 
tions to  become  aggressive,  to  dominate  the  retail  markets, 
to  drive  smaller  concerns  out  of  business,  and  in  short,  to 
do  in  the  field  of  distribution  what  the  great  trusts  have 
done  in  certain  productive  industries. 

The  former,  a  duplication  of  existing  distributive  sys- 
tems, constitutes  social  waste ;  the  latter,  a  tendency  to  gain 
control  of  large  sections  of  the  retail  business,  is  a  menace. 
But  present  conditions  of  retail  trade  encourage  the  organi- 
zation and  development  of  just  such  special  systems.  Until 
something  shall  have  been  done  to  eliminate  the  friction 
now  so  common  between  producers  and  distributors,  the 
present  tendency  towards  large  and  special  retailing  aggre- 
gations must  go  on.  The  remedy,  if  such  it  may  be  called, 
is  to  remove  the  causes  of  friction. 


THE  IDEAL  RETAILING  SYSTEM  363 

If  a  remedy  is  to  be  applied,  it  would  seem  wise,  in  view 
of  our  experience  with  the  great  industrial  trusts,  to  apply 
it  now  as  a  preventative  rather  than  wait  until  the  develop- 
ment has  gone  on  so  far  as  to  demand  a  cure. 

The  greatest  causes  of  friction  between  producers  and 
retailers  at  the  present  time  are  as  follows : 

1.  Price-discriminations,   in  which   some  dealers   are 

favored  at  the  expense  of  others. 

2.  Price-cutting  on  standard  goods  resulting  in  injury 

to  the  producer's  markets. 

3.  The  difficulty  producers  experience  in  getting  and 

keeping  their  goods  in  the  hands  of  dealers  so 
that  they  may  be  obtained  by  the  consumers. 

The  first  steps  aimed  at  reducing  such  friction  must 
seek  to  prevent  unfair  price-discrim.inations  between  buyers, 
and  must  grant  to  the  producer,  who  desires  to  make  a  stand- 
ardized article,  the  right  to  name  the  prices  at  which  it  is 
to  be  sold  by  all  dealers.  The  elimination  of  the  system 
of  granting  price  favors  to  "  preferred  customers  "  and  of 
unauthorized  price-cutting  of  standard  goods,  would  go  far 
towards  removing  many  of  the  present  serious  causes  of 
controversy. 

The  third  great  source  of  friction  in  the  distributive 
machine,  mentioned  above,  is  the  difficulty  experienced  by 
producers  in  getting  their  goods  into  the  hands  of  retailers 
and  in  keeping  them  there.  The  expense  for  traveling  men 
and  for  advertising  campaigns  that  have  for  their  sole  pur- 
pose the  cultivation  of  trade  relations  with  dealers,  getting 
trade  away  from  other  concerns,  and  preventing  other  con- 
cerns from  retaliating,  is  enormous.  Under  present 
methods  of  competition  this  waste  seems  unavoidable.  Busi- 
ness men  everywhere  frankly  admit  that  this  is  one  of  the 
big  problems  of  present-day  industry.     Into  this  competi- 


364  ECONOMICS  OF  RETAILING 

tion  all  the  forces  of  business  are  brought  into  play.  Far 
from  stopping  with  perfecting  the  character  of  the  goods 
offered  for  sale,  or  reducing  the  price  to  the  lowest  possible 
point  to  secure  markets  through  the  regular  channels,  much 
baser  methods  amounting  virtually  to  bribery  and  graft  are 
often  resorted  to.  To  reduce  the  friction  arising  from  these 
causes  something  must  be  done  to  open  the  regular  distribu- 
tive channels  to  all  producers  on  the  same  terms. 

It  does  not  seem  beyond  the  bounds  of  practical  think- 
ing to  suggest  that  all  dealers  of  a  certain  class  of  goods 
should  be  required  to  admit  to  their  stores  the  products  of 
all  manufacturers  or  jobbers  who  might  desire  to  employ 
their  services  upon  being  guaranteed  a  reasonable,  fair  re- 
muneration therefor. 

This  plan  might  be  entirely  impracticable  in  some  lines. 
But  among  the  specialties  in  groceries,  dry-goods,  drugs, 
and  hardware,  certainly  much  waste  could  be  eliminated  if 
the  manufacturer  could  freely  send  a  sample  or  a  small  lot 
of  his  goods  to  the  retailer  together  with  his  guarantee  to 
pay  the  retailer  for  his  expense  for  a  given  period  of  time, 
whether  sales  were  made  or  not.  The  retailer  would  then 
serve  the  manufacturer,  or  the  producer,  in  much  the  same 
capacity  and  under  the  same  principle  as  the  transportation 
companies  now  serve  shippers.  Each  manufacturer  would 
at  least  get  a  chance  to  have  his  goods  displayed  where  cus- 
tomers are,  just  as  shippers  are  now  all  given  the  privilege 
of  having  their  goods  transported. 

This  plan  would  mean  a  great  saving  to  the  manufac- 
turer in  selling  and  advertising  expense.  The  problem  of 
the  manufacturer  under  this  plan  would  not  be  how  to  get 
retail  dealers  to  agree  to  take  his  goods,  or  how  to  keep 
their  custom  after  they  had  once  begun  to  order,  that  is,  to 
keep  other  manufacturers  from  taking  the  trade  away;  but 
the  problem  would  be  how  to  make  the  goods  so  attractive 


THE  IDEAL  RETAILING  SYSTEM  365 

in  quality,  appearance,  and  price  as  to  cause  them  to  be  sold 
to  consumers  in  competition  with  other  like  goods  from 
other  producers,  all  on  the  same  counter,  or  in  the  same 
show  case.  The  real  demand  for  an  article  could  soon  be 
determined  by  this  method  and  at  much  less  expense  for 
most  goods  than  by  sending  out  traveling  salesmen  and 
spending  large  sums  on  advertising.  There  would  still  be 
some  need  for  commercial  travelers  and  certainly  for  ad- 
vertising, but  both  forms  of  sales  promotion  would  become 
very  much  more  effective  than  at  present. 

The  retailer  would  be  confronted  by  a  number  of  prob- 
lems quite  different  from  those  he  has  to  meet  now.  One 
of  these  would  be  to  provide  suitable  space  for  all  of  the 
goods  that  might  be  sent  to  him  by  producers.  But  since 
the  retailer  would  be  paid  for  his  service,  including  rent  for 
the  space  occupied  by  the  goods,  it  does  not  seem  that  the 
problem  would  prove  unsolvable.  There  would  also  be  dif- 
ficulty, though  not  insurmountable,  in  providing  fair  display 
space  and  prorating  the  various  rental  charges  for  the  vari- 
ous classes  of  goods  consigned  to  the  store.  The  capital 
of  a  dealer  would  be  his  store  room,  fixtures,  and  equip- 
ment. The  risks  of  marketing  would  fall  where  they  be- 
long—  on  the  producer.  Accumulation  of  dead  or  unsal- 
able stock  in  any  community  could  be  obviated  by  this 
method  of  distribution.  Goods  not  sold  within  a  certain 
time  could  simply  be  returned  to  the  manufacturer  or  sent 
on  his  order  to  some  other  store  where  sales  were  being 
made. 

The  consumer  would  be  benefited  most  of  all.  In  the 
first  place,  the  emphasis  in  competition  would  be  placed  by 
the  manufacturer  on  getting  the  consumer's  trade  rather 
than  as  now  on  getting  the  retailer's  trade.  To  get  the 
consumer  to  buy,  quality  and  price  would  become  preem- 
inent considerations.     In  the  second  place,  it  seems  quite 


366  ECONOMICS  OF  RETAILING 

likely  that  the  consumer  would  have  a  larger  variety  of 
goods  to  select  from,  so  that  wants  could  be  more  fully  and 
specifically  satisfied.  In  the  third  place,  many  more  kinds 
of  goods  would  reach  the  consumers  than  is  now  the  case; 
for,  now,  many  valuable  inventions  are  probably  never 
marketed  because  their  promoters  are  unable  to  satisfy  the 
demands  of  jobbers  or  other  dealers  who  control  the  outlets. 

It  might  be  urged  that  this  method  would  tie  up  a  great 
amount  of  the  manufacturers'  capital  in  the  form  of  goods 
consigned  to  dealers.  This  is  true,  and  it  is  not  to  be  ex- 
pected that  every  manufacturer  could  effect  national  dis- 
tribution at  once.  It  is  obvious,  however,  that  the  plan  pro- 
posed has  many  advantages  for  the  manufacturer.  Ad- 
vertising and  distribution  could  be  perfectly  correlated  by 
taking  one  community  at  a  time.  Goods  distributed  nation- 
ally could  be  advertised  through  national  mediums,  while 
the  goods  distributed  through  certain  particular  sections 
could  be  advertised  in  those  sections  only.  Many  other  pos- 
sibilities of  this  plan  will  suggest  themselves  to  the  reader. 

Prevention  of  unfair  price-discrimination,  permitting 
price-maintenance  under  careful  supervision,  and  opening 
the  retail  markets  to  all  producers  —  these  three  reforms  in 
business  would  result  in  raising  it  to  a  plane  where  work- 
manship and  efficiency  rather  than  subtlety,  crafty  bargain- 
ing, and  force  count  for  success.  Under  these  three  policies 
there  would  be  no  object  in  creating  chain  systems  or  in 
organizing  any  form  of  combination  other  than  for  pur- 
poses of  reducing  the  expenses  of  handling.  Eliminate  the 
inside-price-buying  system  and  the  price-cutting  system  in 
selling  and  you  eliminate  bases  upon  which  stand  all  mar- 
keting monopolies. 

The  great  power  of  a  modern  trust,  whether  it  be  in  the 
field  of  distribution  or  of  production,  lies  either  in  its 
ability  to  buy  for  less,  to  sell  for  more,  or  to  do  its  work 


THE  IDEAL  RETAILING  SYSTEM  367 

at  a  lower  expense  than  its  competitors.  Its  buying  for 
less  amounts  to  no  advantage  unless  the  price  is  much 
less  proportionately  than  that  paid  by  other  competitors. 
Such  a  difference  constitutes  unfair  discrimination.  The 
trust  can  sell  for  more  only  when  it  has  a  monopoly  — 
when  its  competitors  have  been  vdped  out  of  the  market. 
But  the  usual  method  adopted  by  the  trusts  to  get  rid  of 
competitors  is  by  underselling  them  in  one  place  or  in  one 
line  at  a  time,  while  making  up  these  losses  by  sales  in  other 
places  or  other  lines.  Price-maintenance  is,  at  least,  a  par- 
tial, if  not  a  complete,  remedy  for  this  in  the  retail  trade. 

In  so  far,  and  wherever  the  trust  succeeds  in  actually 
reducing  the  expenses  of  production  or  distribution,  at  the 
same  time  giving  the  service  that  the  public  desires,  it  is  to  be 
commended  and  encouraged  as  against  less  efficient  con- 
cerns. But  in  all  recent  trust  investigations,  the  economies 
of  production  and  distribution  gained  by  organization  have 
been  largely  incidental  and  insignificant  compared  with  the 
power  it  has  given  to  buy  for  less,  and  sell  for  more  than 
competitors,  and  thus  to  put  competitors  out  of  business. 

If  the  pubHc  really  wishes  to  check  the  evils  of  trust 
development,  the  means  in  general  outline  are  clear.  Sim- 
ply prevent  unfair  price-discrimination.  In  other  words, 
compel  all  sellers  to  sell  to  all  buyers  who  apply  on  equiva- 
lent terms,  and  thereby  prevent  cut-throat  competition,  that 
is,  price-cutting  that  goes  below  the  legitimate  costs  of  pro- 
duction and  distribution.  As  for  the  rest,  under  these  con- 
ditions, let  the  best  man  win.  The  concern  with  the  best 
system  and  the  lowest  costs  will  succeed,  as  it  should.  Com- 
bination will  be  made,  not  for  industrial  and  commercial 
warfare,  but  for  efficiency,  if  at  all. 

Where  governments  do  not  interfere  with  these  tenden- 
cies of  present-day  competition  and  its  frictions,  business 
concerns  themselves  are  forced  to  combine  into  organizations 


368  ECONOMICS  OF  RETAILING 

having  for  their  purpose  the  regulation  of  trade  abuses. 
Something  has  already  been  accomplished  in  this  country 
through  "  the  trade  relations  committees  "of  the  great 
dealers'  associations,  but  in  this  respect  American  business 
men  are  much  behind  those  of  Europe.  The  Proprietary 
Articles  Trade  Association  of  England  is  a  good  example. 
The  "  P.  A.  T.  A.,"  as  it  is  called,  is  made  up  of  manu- 
facturers, jobbers,  and  the  majority  of  retailers  of  the  coun- 
try. Agreements  are  reached  as  to  both  retail  and  whole- 
sale prices,  thus  settling  both  the  quantity-discount  and 
price-maintenance  questions.  Any  manufacturer  or  jobber 
who  transgresses  the  rules  established  by  agreement  by  giv- 
ing inside  prices  to  any  buyer  is  immediately  expelled,  the 
prices  on  his  goods  are  generally  cut  thereafter  by  all  deal- 
ers, the  stock  in  the  hands  of  the  dealers  is  disposed  of 
and  is  thereafter  ordered  only  upon  request  of  consumers. 
Retailers  who  cut  prices  set  by  the  P.  A.  T.  A.  are  like- 
wise summarily  treated.^ 

It  is  possible  that  the  conditions  of  American  retail  trade 
that  are  now  so  troublesome  will  in  the  future  be  eliminated 
or  avoided  by  plans  such  as  these.  But  there  is  always  a 
tendency  when  an  organization  such  as  the  P.  A.  T.  A. 
becomes  large  and  effective,  to  go  farther  than  merely  cor- 
rect the  abuses  existing  within  and  to  lay  tribute  upon  the 
consumer.  In  other  cases,  the  members  of  such  organiza- 
tions become  unprogressive  and  assume  an  unnecessary 
enmity  towards  all  improvement.  In  view  of  these  tenden- 
cies, such  associations  need  the  corrective  balance  of  the 
one  other  party  interested  in  their  work  —  namely,  the  con- 
sumer.    Hence  there  is  needed  the  supervision  of  the  public. 

How  far  government  supervision  and  regulation  over 
the  retail  trade  will  be  carried  remains  to  be  seen.  One  can 
well  adopt  Spencer's  dictum  that  the  government  that  gov- 

1  Printers'  Ink,  April  2,  1914,  p.  64. 


THE  IDEAL  RETAILING  SYSTEM  369 

erns  least  is  the  best,  and  that  the  responsibility  of  working 
out  its  own  destiny  should  be  left  as  largely  as  possible  to 
each  class  of  business.  It  is  only  when  one  group  threatens 
the  existence  of  others  and  offers  no  ultimate  advantage 
to  the  consumer,  that  the  spirit  of  fair  play  must  be  invoked 
through  the  agency  of  government  and  the  offenders  told 
to  limit  their  activities  to  fair  methods. 

One  thing  that  the  public  can  and  should  do  for  distri- 
bution is  to  collect  statistics  that  will  give  an  accurate, 
quantitative  idea  of  the  extent  of  the  business,  the  different 
types  of  retail  organizations,  the  expenses  of  selling  in  each, 
the  amount  of  the  business  done,  the  amounts  of  capital 
invested,  the  character  of  retail  store  ownership,  the  rela- 
tions of  retail  stores  to  jobbers  and  manufacturers,  the  num- 
ber and  kinds  of  employees  and  their  wages  and  salaries, 
the  extent  of  the  credit  business,  the  costs  of  delivery,  the 
tendencies  in  consumer  demands,  and  many  more  important 
matters  necessary  to  forming  correct  judgments  concern- 
ing the  retail  business. 

By  means  of  the  Federal  and  State  censuses,  and 
through  the  work  of  other  government  departments  and 
bureaus,  the  nation  is  gradually  coming  into  possession  of 
a  fair  knowledge  of  the  problem  of  the  production  of  raw 
materials,  of  transportation,  and  of  manufactures.  In  the 
newly  established  Office  of  Markets  in  the  Department  of 
Agriculture,  the  distribution  of  agricultural  products  is  to 
be  studied.  Except  for  this  beginning,  important  as  it  is, 
and  covering  but  a  single  section  of  the  big  field  of 
goods  distribution,  nothing  has  been  done  by  any  depart- 
ment of  government  to  determine  the  degree  of  our  nation's 
efficiency  in  its  commerce  and  trade.  Of  all  the  states, 
Massachusetts  has  taken  the  first  and  only  census  of  trade.^ 
Even  that  was  meagre  in  detail.     It  seems  strange  that 

2  In  1905. 


37#  ECONOMICS  OF  RETAILING 

great  sums  of  public  money  should  be  given  to  the  study 
and  promotion  of  better  methods  of  production,  and  that 
nothing  should  be  done  to  determine  better  standards  of 
efficiency  in  distribution,  especially  when  one  considers  that 
the  costs  of  distribution  are  nearly  equal  to  those  of  pro- 
duction. Investigations  made  so  far  in  the  field  of  retail- 
ing are  mere  samplings,  and  the  judgments  passed  are  but 
little  more  than  guesses.  The  demand  for  census  taking 
and  investigation  in  the  distributive  business  is  one  that  the 
government  should  neglect  no  longer. 

It  is  probable  that  the  greatest  progress  to  come  in  retail- 
ing will  not  result  from  any  readjustment  brought  about 
by  public  action,  though  this  may  be  a  necessary  part  of 
its  evolution,  but  rather  from  a  scientific  study  of  the  prob- 
lem of  distributing  goods  made  by  retailers  and  their  sales- 
people themselves.  The  costs  of  distribution  are  admittedly 
too  high  at  present  for  the  services  performed.  If  these 
costs  could  be  generally  reduced,  for  example,  as  much  as 
2  per  cent,  it  would  mean  a  saving  of  from  $200,000,000 
to  $300,000,000  annually  to  the  United  States  alone.  This 
saving  would  first  take  the  form  of  added  profits  to  the  dis- 
tributors but  ultimately  would  go  to  the  consumers  as  a 
whole.  But  2  per  cent  is  a  very  conservative  estimate  of 
reductions  that  may  be  made  when  those  engaged  in  the 
business  shall  have  been  properly  educated  for  their  work. 
It  may  not  be  too  much  to  say  that  savings  of  twice  or  even 
three  times  this  amount  are  possible. 

There  is  no  reason  why  scientific  study  and  education 
should  not  do  for  distribution  what  it  is  doing  for  agricul- 
ture. Like  agricultural  education,  the  education  for  retail- 
ers and  their  salespeople  must  be  widely  diffused  in  order 
that  society  may  make  appreciable  gains.  Every  store 
worker  must  share  in  this  training.  Progress  towards  more 
economical  and  better  retailing  can  come  only  by  slow  de- 


THE  IDEAL  RETAILING  SYSTEM 


371 


grees,  and  by  improvement  of  one  thing  at  a  time.  For 
the  best  scientific  results,  there  must  be  co-operation  of  both 
schools  and  the  public  with  the  retailers.  One  of  the  most 
vital  effects  to  be  hoped  from  a  proper  training  of  retailers 
is  that  they  may  in  turn  help  consumers  to  become  rational 
in  their  demands  and  wiser  in  their  purchases  and  con- 
sumption. 

Some  reforms  are  necessary  in  present-day  business 
methods.  A  clear  understanding  of  the  evils  that  exist 
and  their  causes  will  go  far  towards  prompting  business  men 
to  take  steps  of  their  own  accord  to  eliminate  them.  There 
is  a  demand  that  business  education  should  be  offered  by 
the  public  schools.  The  purpose  of  such  education  would 
be  to  point  out  the  ways  in  which  business  might  be  success- 
fully conducted.  If  present-day  business  practice  alone 
were  to  serve  as  the  lesson  to  be  studied,  the  schools  would 
have  to  countenance  some  methods  that  are  expedient  rather 
than  right.  This  proceeding  would  justly  be  met  by  public 
criticism.  Business  education  must  come,  but,  as  an  accom- 
paniment, business  must  be  made  fit  to  teach.  Machiavel- 
lian training  has  no  place  in  a  public  educational  system. 
Thus  the  coming  of  science  and  education  into  distribution 
will  help  to  accomplish  what  all  business  men  of  high  prin- 
ciple and  broad  vision  desire  to  see,  efBciency  and  honesty 
of  performance  in  this  great  and  useful  work. 


APPENDIX  I 

DISTRIBUTION  OF  FAMILY  EXPENDITURES  ^ 

Ernest  Engel  (1821-96),  while  at  the  head  of  the  Statistical  Bureau 
of  Saxony,  conducted  extensive  investigations  of  vvorkingmen's  budgets. 
As  a  result  of  these  studies  he  formulated  tables  that  have  become 
classical. 

Expenditures,  by  Income  Groups  and  Percentages 

(Engel's  Table  for  Saxony,  1857) 

Annual  Income 
Items  of  Expenditure  $225-$300  $450-$600  $750-$l,000 

Subsistence    62.00%  55.00%  50.00% 

Clothing    16.00  18.00  18.00 

Lodging    12.00  12.00  12.00 

Fuel  and  light  5.00  5.00  5.00 

95.00%  90.00%  85.00% 

Education,  church,  etc 2.00%  3.50%  5.50% 

Legal  protection    1.00  2.00  3.00 

Care  of  health  1.00  2.00  3.00 

Comfort     (mental    and    bodily- 
recreation)     1.00  2.50  3.50 

5.00%  10.00%  15.00% 

From  these  tables  Mr.  Engel  propounded  four  economic  laws  that 
are  as  follows : 

First.  That  the  greater  the  income,  the  smaller  the  percentage  of 
outlay  for  subsistence. 

Second.  The  percentage  of  outlay  for  clothing  is  approximately  the 
same,  whatever  the  income. 

Third.  The  percentage  for  lodging  or  rent  and  for  fuel  and  light 
is  approximately  the  same,  whatever  the  income. 

Fourth.  As  the  income  increases  in  amount  the  percentage  of  outlay 
for  sundries  becomes  greater. 

1  Quoted  from   Massachusetts   Cost  of  Living  Commission's  Report,  1910. 

373 


374 


ECONOMICS  OF  RETAILING 


Comparison  of  Five  Investi 
Percentages  of  Expendi 


Rent 

Fuel 

AND  Light 

Income 

L 

5§ 

Is 

3  J 

L 

3     * 

si 

J3    J 

d 

en  O 

w-^ 

m-^ 

c 

'-«.2 

m-^ 

PQ-^ 

& 

iJ 

u 

O 

^'t; 

-^•-^ 

& 

i.^ 

^ 

c/iJ 

c/iH 

6 

i^ 

D° 

;d° 

G 

x^ 

^ 

^o 

^° 

Under  $200 

16.9 

15.4 

... 

... 

7.8 

8.0 

$    200  to  $    300... 

18.0 

14.6 

.  .  . 

. . . 

7.1 

7.4 

300  to        400.  .. 

30.5 

18.6 

14.9 

.  .  . 

.  .  . 

6.5 

7.0 

6.9 

400  to        500.  . . 

26.8 

25.9 

18.5 

15.2 

5.6 

.  .  . 

6.2 

6.6 

6.5 

500  to        600.  .. 

25.9 

17.5 

22.4 

18.4 

15.1 

5.9 

5.4 

6.0 

6.1 

6.5 

600  to        700.  .. 

23.6 

17.1 

21.7 

18.4 

15.5 

5.8 

4.8 

5.7 

5.7 

5.7 

700  to        800.  .. 

21.9 

15.6 

21.2 

18.1 

15.6 

5.0 

4.8 

6.4 

5.2 

5.2 

800  to        900.  .. 

20.7 

13.3 

18.6 

17.0 

16.0 

5.0 

4.3 

5.4 

4.9 

5.1 

900  to     1,000.  .. 

19.0 

13.6 

17.6 

17.5 

14.9 

5.1 

4.0 

4.8 

4.9 

4.7 

1,000  to     1,100.  . . 

18.1 

10.9 

17.3 

17.5 

15.1 

4.5 

3.3 

4.5 

4.8 

4.4 

1,100  to     1,200.  . . 

16.2 

.  . . 

.  . . 

16.5 

12.2 

3.8 

4.6 

3.8 

1,200  to     1,300... 

19.8 

. . . 

.  . . 

17.4 

12.5 

3.8 

.  • . 

4.9 

2.9 

1,300  to     1,400.  .. 

16.8 

.  . . 

18.0 

.  . . 

.  . . 

3.6 

.  .  • 

4.5 

1,400  to     1,500.  .. 

.  . . 

.  . . 

.  . . 

1,500   and    over.. 

16.3 

15.3 

16.2 

4.1 

2.7 

3.2 

Let  us  now  take  the  results  of  a  number  of  investigations,  and  test 
their  results  by  Engel's  laws.  The  investigations  selected  for  this 
comparison  are  chosen  either  because  based  on  the  study  of  large 
numbers  of  families  or  because  they  are  comparatively  recent.  They 
are  as  follows : 

Investigation  of  cost  of  living  of  workingmen  in  textile  and  glass 
industries,  made  by  the  United  States  Bureau  of  Labor  in  1891.  Total 
number  of  budgets,  5,284. 

Investigation  of  cost  of  living,  made  by  the  United  States  Bureau 
of  Labor  in  1903.  The  investigation  was  based  upon  the  study  of 
25,440  family  budgets. 

Investigation  of  wage  earners'  budgets  in  New  York,  made  in  1905 
by  Mrs.  Louise  B.  More  of  Greenwich  House.  This  investigation  was 
an  intimate  study  of  200  families  on  the  lower  west  side  of  New  York 
City. 

Investigation  of  the  standard  of  living  among  workingmen's  families 
in  New  York  City  in  1907,  by  Robert  Coit  Chapin,  under  the  auspices 
of  the  New  York  State  Conference  of  Charities  and  Correction  and  the 
Russell  Sage  Foundation.    This  was  an  intensive  study  of  391  families. 


APPENDIX  I 


375 


CATIONS  OF  Family  Budgets 
TURES,  BY  Income  Groups 


Cloth 

[NG 

Food 

Su 

NDRIES 

c 
a 

6 

1 

s 
6  = 

en  O 

S.22 
o  P 

2i 

o 

3  r? 

it 

6 

o 

3  § 
•J 

c 

6 

O 

8.6 

12.8 

50.8 

49.6 

15.5 

13.9 

.  . . 

.  . . 

8.6 

14.3 

. . . 

47.3 

44.2 

. . . 

.  .  . 

.  .  . 

18.7 

19.2 

.  . . 

.  . . 

7.3 

10.2 

14.4 

. . . 

. . . 

44.2 

48.0 

45.4 

. . . 

.  .  . 

11.5 

16.0 

18.2 

13.0 

9.3 

11.3 

14.3 

40.8 

44.4 

46.8 

45.0 

13.8 

14.2 

16.5 

18.6 

12.4 

9.9 

8.5 

11.9 

15.2 

44.4 

43.5 

50.1 

46.1 

43.8 

11.4 

21.0 

13.0 

17.2 

19.1 

12.9 

10.5 

9.0 

12.8 

15.8 

44.6 

41.4 

45.5 

43.4 

41.1 

13.1 

22.5 

18.2 

19.3 

21.5 

]3.4 

11.1 

9.2 

13.5 

16.3 

45.6 

40.2 

44.2 

41.4 

38.8 

14.1 

21.9 

19.0 

21.6 

23.8 

14.0 

11.5 

10.3 

13.5 

15.0 

44.3 

41.9 

45.8 

41.3 

38.0 

16.0 

27.1 

19.9 

23.0 

25.4 

14.6 

11.7 

9.4 

14.3 

16.8 

44.7 

38.4 

45.8 

39.9 

34.3 

16.6 

23.3 

22.4 

23.2 

29.1 

15.5 

11.5 

10.8 

15.0 

17.5 

44.7 

33.3 

43.6 

38.7 

34.7 

17.1 

24.2 

23.8 

23.6 

28.1 

14.9 

14.8 

16.5 

45.6 

37.6 

30.6 

19.5 

26.1 

36.7 

15.2 

15.7 

15.7 

45.0 

36.4 

28.6 

16.2 

25.4 

40.0 

13.7 

... 

11.3 

... 

... 

43.6 

... 

39.5 

... 

... 

22.3 

26.7 

... 

16.8 

10.2 

16.6 

36.8 

21.0 

35.8 

... 

... 

26.6 

25.1 

28.2 

... 

... 

Investigation  of  the  Homestead  Commission  in  Washington,  D.  C, 
made  in  1907,  and  based  upon  the  budgets  of  2,078  famihes. 

The  accompanying  table  enables  us  to  compare  the  results  of  these 
five  investigations.  It  gives  the  percentage  of  expenditure  for  various 
purposes  by  classified  incomes. 

In  the  case  of  rent  it  will  be  seen  that  the  investigations  of  the 
United  States  Bureau  of  Labor  of  1891  and  1903  agree  with  Engel's 
law  —  that  the  proportion  of  income  spent  for  rent  is  about  the  same 
for  all  incomes.  But  the  three  more  recent  studies  all  show  a  decreas- 
ing proportion  expended  for  rent.  For  New  York  this  is  probably  due 
to  the  fact  that  the  minimum  housing  is  abnormally  high,  so  high  for 
low  incomes  that  with  higher  incomes  the  people  cannot  afford  to  move 
into  a  better  house  because  they  are  already  paying  an  abnormal  amount 
for  rent.  In  both  New  York  studies,  rent  takes  more  than  20  per  cent 
of  the  family's  income  for  all  incomes  under  $800  a  year. 

Engel's  law  is  supported  by  the  figures  for  fuel  and  light.  The 
proportion  expended  remains  practically  the  same  for  all  incomes 
covered  by  the  investigations;  and,  furthermore,  the  precentages  very 
nearly  agree  for  all  the  investigations. 


376  ECONOMICS  OF  RETAILING 

Engel's  law  in  regard  to  clothing  is  not  borne  out  by  all  the  studies, 
although  the  increase  in  the  proportion  expended  for  clothing  is  usually 
slight.  There  is  considerable  variation  in  the  percentages  of  expenditure 
for  clothing  in  each  income  group  in  the  different  investigations. 
Engel's  law  with  regard  to  clothing  —  that  the  percentage  of  expendi- 
ture for  that  purpose  did  not  tend  to  increase  with  increasing  income  — 
has  never  been  borne  out  by  studies  made  in  the  United  States. 

The  percentages  of  expenditure  for  food  bear  out  Engel's  law  for 
food  —  that  as  income  increases  the  percentage  of  expenditure  for  food 
decreases.  In  the  $700-$800  and  $80{>-$900  groups  the  figures  for  dif- 
ferent investigations  differ  but  slightly. 

Engel's  law  with  regard  to  sundries  is  strikingly  borne  out  by  every 
investigation.  As  income  increases  the  proportion  spent  for  sundries 
increases. 

On  the  whole,  there  is  a  remarkable  harmony  in  the  results  of  these 
five  investigations,  based  as  they  were  upon  families  in  different  locali- 
ties and  at  different  times,  and  studied  by  various  methods.  It  would 
be  safe  to  deduce  from  these  tables  a  few  generalizations  about  the 
expenditure  of  the  income  of  a  workingman's  family  under  normal 
conditions.  For  weekly  incomes  of  from  $1^  to  $18,  the  income  would 
usually  be  spent  about  as  follows :  rent,  18-20  per  cent;  fuel  and  light, 
5  per  cent;  clothing,  14  per  cent;  food,  43-45  per  cent;  sundries,  15-17 
per  cent.  This  analysis  may  not  actually  fit  the  expenditures  of  many 
families,  but  it  would  probably  be  found  that  normal  families  with 
incomes  of  the  amounts  stated  tend  to  approach  these  figures. 


APPENDIX  II 

STATISTICS  OF  TRADING  CONCERNS  IN  MASSA- 
CHUSETTS 


Classification  of  Trading  Concerns  in  Massachu- 
setts BY  Manner  of  Selling 


Number 


Retail    

24,522 

$120,065,311 

Wholesale    ... 

3,315 

109,952,787 

Jobbing     

480 

16,777,443 

Commission    . . 

570 

24,255,758 

Exporting    .  . . 

12 

237,500 

Importing    .  . . 

129 

15,516,364 

Exporting  and 

importing    . . 

17 

1,161,293 

Capital    Value  Goods  Sold   Wages 

$    444,984,052  $    849,075 

510,016,634  359,150 

81,017,798  56,926 

253,670,922  48,048 

2,492,083  389 

83,540.190  13.644 


8,519,704 


3,254 


Salaries 

$  78,206 

152,492 

32,924 

29,711 

627 

13,735 

2,218 


Z17 


APPENDIX  III 

GENERAL  STATISTICS  OF  RETAIL  TRADE 

General  Summary  of  Massachusetts  Trading  Con- 
cerns 

Number  of  establishments  29,045 

Dealing  in  raw  materials    1,682 

Dealing  in  food  products  14,224 

Dealing  in  manufactured  goods 13,139 

Total  capital  invested   $287,966,456 

Raw  materials   $42,897,034 

Food   products    71,708,282 

Manufactured  goods   173,361,140 

Value  of  goods  sold    $1,384,161,383 

Raw    materials    $270,159,171 

Food    products    448,002,405 

Manufactured  goods   665,999,807 

Total  number  of  wage  earners 129,129 

Males    90,332 

Females    38,797 

Total  number  of  salary  earners   15,330 

Males     13,031 

Females    2,299 

Retail    stores  —  total    24,522 

Raw  materials  1,038 

Food  products  12,441 

Manufactured  goods  11,043 

Weekly  Wages  Paid  by  Trading  Concerns  in  Massa- 
chusetts IN  1904 

Weekly  Wage  Males  Females  Both 

Under  $3   2,248  1,970  4,218 

$  3  to  $  4    2,524  2,909  5,433 

4  to       5    2,696  3,848  6,544 

5  to       6    3,471  5,766  9,237 

6  to       7   3,914  8,526  12,440 

7  to       8   3,379  4,452  7,831 

378 


379 


Females 

Both 

3,639 

7,843 

2,082 

8,693 

3,683 

17,645 

1,838 

25,517 

819 

16,875 

265 

6,853 

APPENDIX  III 

Weekly  Wage  Males 

8  to       9   4,204 

9  to     10   6,611 

10  to     12    14,962 

12  to     15    23,679 

15  to     20    16,056 

20    6,588 

Total    90,332  38,797  129,129 

Weekly  Salaries  Paid  by  Trading  Concerns  in  Massa- 
chusetts IN  1904 

Weekly  Salaries  Males  Females  Both 

Under  $  5    556  99  655 

$  5  to  $  6   293  174  467 

6  to       7   339  273  612 

7  to       8    261  269  530 

8  to       9    345  297  642 

9  to     10   341  183  524 

10  to     12   890  332  1,222 

12  to     15    1,767  369  2,136 

15  to     20    2,524  216  2,740 

20 5,715  87  5,802 

Total    13,031  2,299  15,330 


Retail  Store  Statistics  for  Massachusetts,  1904 

Number        Capital  Sales  ^^^^  ^,^Z 

Total  retail  Stores.. 24,522     $120,065,311  $444,984,052  $849,075     $78,206 

Dealing  in  raw  ma- 
terials        1,038         11,308,916  41,946,360  80,584         8,361 

Dealing  in  food  prod- 
ucts  12,441         30,968,451  181,258,332  319,437       15,327 

Dealing  in  manufac- 
tured   goods    ....11,043         77,287,944  221,779,360  449,054       54,518 


Deductions  from   Massachusetts  Trade  Census  Re- 
garding Food-Selling  Stores,  1905 

Total  number  of  retail  stores  selling  food  of  all  kinds 12,441 

Average  capital  invested $2,489 

Average   sales    $14,569 

Ratio  of  food  stores  to  population 1  store  to  241  people 


38o 


ECONOMICS  OF  RETAILING 


Average  Population  to  Each  Kind  of  Retail  Store 
FOR  Census  Years  (Massachusetts) 


Line  of  Business 


1875 


1880 


1885 


1890 


1895 


Drugs  and  medicines 

Boots  and  shoes  

Carpets    

China,  glass,  and   crockery 

Dry-goods     

Fancy   goods    

Furniture    

Glassware 

Groceries  

Hats,  caps,  and  furs  .... 
Jewelry,      watches,      and 

plate    

Kid  gloves 

Kitchen-furnishing  goods 
Laces,  embroideries,  etc.. 
Men's  and  boys'  clothing. 
Men's  furnishing  goods . . 

Millinery   

Music    

Small   wares    

Sporting  goods   

Stationery   

Toys 

Trunks,  bags,  and  valises 

Upholstery    goods    

Women's     clothing     and 
furnishing  goods    


1,461 
1,809 

20,113 
7,433 
2,023 
1,828 
2,295 

13,653 

357 

3,454 

3,419 

48,846 

34,129 

31,084 

2,590 

5,999 

2,178 

21,370 

12,211 

34,919 

5,605 

68,384 

12,664 

11,397 

17,996 


1,481 
2,199 

21,343 
9,304 
2,573 
2,356 
2,555 

15,514 

383 

4,269 

3,702 

45,355 

24,189 

32,985 

4,123 

8,246 

2,147 

19,097 

22,677 

72,568 

4,970 

51,834 

18,142 

13,955 

32,985 


1,555 
2,193 

16,266 
8,873 
2,585 
2,730 
2,656 

17,745 

394 

4,593 

3,308 

39,309 

35,490 

24,400 

3,683 

6,100 

2,638 

26,026 

16,974 

43,377 

5,005 

78,079 

18,590 

15,015 

24,400 


1,563 
2,076 

22,424 
8,305 
2,398 
3,900 
2,970 

15,465 

392 

5,750 

3,559 

74,746 

26,381 

56,060 

3,274 

5,215 

2,893 

32,034 

28,030 

48,831 

5,901 

56,060 

17,249 

16,017 

28,030 


1,510 

1,656 
19,877 
11,043 

2,643 

4,688 

3,227 

14,615 

360 

6,538 

3,736   ^ 
62,115 
23,663 
33,128 

2,940 

5,286 

2,199 
23,663 
38,225 
33,128 

6,999 
82,820 
23,663 
16,564 

29,231 


Average  Population  to  All  Kinds  of  Stores  for  Cen- 
sus Years  (Massachusetts) 


Census  Years 


Population 


1875     341,919 

3880     362,839 

1885     390,393 

1890     448,477 

1895     496,920 


Number  of 

Stores 
Considered 

2,734 
2,571 
2,701 
3,010 
3,499 


Average 
Population  to 
Each  Store 

125 
341 
145 
149 
142 


APPENDIX  III  381 

Comparison   of  the  Number  of  "  Departments  "  in 

Department  Stores  with  the  Number  of 

Retail  Stores  in  Boston  in  1899 

Classification  of  De-  Number 

partments  and  Stores  Departments 

Apothecaries  (drugs  and  medicines)  .  4 

Boots  and  shoes   16 

Carpets    8 

China,  glass,   and   earthenware 9 

Dry-goods    54 

Fancy  goods   16 

Furniture    5 

Glassware    5 

Groceries    5 

Hats,  caps,  and  furs 9 

Jewelry,  watches,  and  plate 14 

Kid  gloves  12 

Kitchen-furnishing  goods   7 

Laces,  embroideries,  etc 30 

Men's  and  boys'  clothing  9 

Men's  furnishing  goods 16 

Millinery    11 

Music 5 

Small  wares 27 

Sporting  goods 3 

Stationery 8 

Toys  6 

Trunks,  bags  and  valises  13 

Upholstery  goods    7 

Women's   clothing   and   furnishing 

goods     85                  23                 369.57 

Not  classified  33                 . .                  


Number  of 

Percentage  of 

Retail 

Departments  to 

Stores 

Retail  Stores 

328 

1.22 

321 

4.98 

31 

25.81 

42 

21.43 

225 

24.0 

94 

17.02 

184 

2.72 

30 

16.67 

1,695 

0.30 

87 

10.34 

157 

8.92 

9 

133.33 

22 

318.2 

15 

200.0 

201 

4.48 

96 

16.67 

242 

4.55 

20 

25.00 

14 

192.86 

14 

21.43 

76 

10.53 

3 

200.00 

17 

76.47 

37 

18.92 

APPENDIX  IV 

DEALERS  IN -THE  UNITED  STATES  IN  1913  ^ 

;                                 Wholesale  Retail 

Agricultural  implement  dealers  240  15,912 

Animal,  bird,  and  goldfish 420 

Art  stores  and  picture 1,900 

Automobile    10,200 

Bakers    620  25,788 

Bicycle    5,013 

Booksellers  and  stationers   11,954 

Booksellers  and  stationers  (second  hand) 108 

Boot  and  shoe 522  20,104 

Butchers  and  meat  markets  781  62,798 

Butter  and  eggs  1,194  

Carpet    83  19,316 

Cattle  dealers  and  shippers 20,100 

Cheese    263  

China,  crockery,  and  glassware 340  2,861 

Cigars  and  tobacco   1,991  40,555 

Cloaks  and  suits 1,988 

Clothing   160  22,713 

Coffee,  tea,  and  spice 547  3,764 

Confectioners 35,423 

Department  stores   1,752 

Drugs    668  43,239 

Dry-goods     725  30,787 

Electrical  supplies   424  3,272 

Fancy  goods  and  notions  exclusive  786  3,759 

Feed,  flour,  and  grain   1,572  19,839 

Fish    950  

Fishing    tackle    3,885 

Five  and  ten  cent  —  independent 1,054 

Florists     1,765  8,482 

Fruit     1,831  10,087 

Furs   (ra^r)    305 

Fur  garments 2,334 

Furniture    307  16,131 

Furniture    (second-hand)    2,175 

Gas  and  electric  fixtures 2,476 

General    stores    144,933 

Glass,  oils,  and   paint    605  29,533 

Glove    63  

1  From   R.    G.   Dun  and   Company's  list  as  compiled  by  the  Rapid  Addressing 
Machine   Companv. 

382 


APPENDIX  IV 


383 


Wholesale  Retail 

Grain   dealers    1,210  16,783 

Grocers    3,840  172,043 

Gun   3,885 

Hair-goods    1,037 

Hardware    928  20,881 

Harness  and  saddlery   314  20,084 

Hats  and  caps  201  16,240 

Hides    1,528 

Honey 113  

Hosiery    1,105  

Ice   5,429 

Instalment  houses 1,488 

Japanese  and  Chinese  goods 413 

Jewelers   815  22,025 

Junk    189  6,213 

Laces  and  embroideries 384 

Liquors  5,412  101,605 

Lumber    29,669 

Mail-order  houses   1,304 

Men's  furnishings   (exclusive)    315  12,387 

Milk    11,092 

Milliners    424  26,843 

Musical  instruments   6,185 

Neckwear    315  

Notions  and  toys   802  6,892 

Nuts    138 

Oysters   (dealers  and  shippers)    1,222 

Paper    905  

Pianos  and  organs 8,040 

Produce    7,785  

Provisions   1,221  

Real  estate 70,491 

Rubber  scrap 31 

Seed  men 597  

Sewing  machines 2,102 

Sponges   37  

Sporting  goods   423  2,410 

Stamps  and  coins 129 

Stationery   391  

Stoves 22,177 

Tallow  and  pelts 1,528 

Tobacco  leaf 592  

Trunks     712 

Typewriters  and  supplies 810 

Undertakers    17,808 

Wall  paper  284  

Willow  and  woodenware   131  

Wines    229  

Wool 767 

There  is  undoubtedly  some  duplication  in  the  numbers  given  in  the 
foregoing  table.    It  would  hardly  be  safe  to  add  the  number  of  retailers 
in  each  line  named  above  to  get  the  total  number  of  retail  stores.     Some 
stores  carry  several  lines,  and  it  is  possible  that  the  same  store  may  be 


384  ECONOMICS  OF  RETAILING 

listed  in  several  lines  in  several  cases.  So  far  as  it  goes,  however, 
the  number  of  dealers  in  any  given  line  as  stated  is  fairly  correct,  that  is 
to  say,  there  are  probably  about  43,239  places  where  drugs  are  sold, 
20,881  hardware  stores,  and  so  on. 


APPENDIX  V 

RULES  FOR  FIGURING  COSTS  AND  PROFITS  ' 

1.  Charge  interest  on  the  net  amount  of  your  total  investment  at 
the  beginning  of  your  business  year,  exclusive  of  real  estate. 

2.  Charge  rental  on  all  real  estate  or  buildings  owned  by  you  and 
used  in  your  business  at  a  rate  equal  to  that  which  you  would  receive 
if  renting  or  leasing  it  to  others. 

3.  Charge  in  addition  to  what  you  pay  for  hired  help  an  amount 
equal  to  what  your  services  would  be  worth  to  others ;  also  treat  in 
like  manner  the  services  of  any  member  of  your  family  employed  in 
the  business  not  on  the  regular  pay-roll. 

4.  Charge  depreciation  on  all  goods  carried  over  on  which  you  may 
have  to  make  a  less  price  because  of  change  in  style,  damage,  or  any 
other  cause. 

5.  Charge  depreciation  on  building,  tools,  fixtures,  or  anything  else 
suffering  from  age  or  wear  and  tear. 

6.  Charge  amounts  donated  or  subscriptions  paid. 

7.  Charge  all  fixed  expenses,  such  as  taxes,  insurance,  water,  light, 
fuel,  etc. 

8.  Charge  all  incidental  expenses,  such  as  drayage,  postage,  office 
supplies,  livery,  or  expenses  of  horses  and  wagons,  telegrams  and 
telephone,  advertising,  canvassing,  etc. 

9.  Charge  losses  of  every  character,  including  goods  stolen  or  sent 
out  and  not  charged,  allowance  made  customers,  bad  debts,  etc. 

10.  Charge  collection  expense. 

11.  Charge  any  other  expense  not  enumerated  above. 

-;*^2,  When  you  have  ascertained  what  the  sum  of  all  the  foregoing-r^         p 
/y  items  amounts  to,  prove  it  by  your  books,  and  you  will  have  your  total    ^    1^1 
I  /  expense  for  the  year ;  then  divide  this  figure  by  the  total  of  your  sales,      ) 
^^  and  it  will  show  you  the  per  cent  which  it  has  cost  you  to  do  business../  =■     , 
13.  Take  this  per  cent  and  deduct  it  from  the  price  of  any  article 
you   have   sold,   then   subtract  from  the   remainder   what  it  cost  you 
y  (invoice  price  and  freight),  and  the  result  will  show  your  net  profit  or 
\  loss  on  the  article.  •    .  * 

^TTfTGo  over  the  selling  prices  of  the  various  articles  you  handle  and 
see  where  you  stand  as  to  profits,  then  get  busy  in  putting  your 
selling  figures  on  a  profitable  basis  —  and  talk  it  over  with  your  com- 
petitor as  well. 

1  Recommended  by   the   National   Association   of  Credit  Men. 


APPENDIX  VI 

METHODS  OF  HANDLING  CASH,  CREDITS  AND 
SOLD  GOODS 

There  is  considerable  disagreement  among  expert  store  managers 
at  the  present  time  concerning  the  best  methods  of  handling  cash  and 
credits,  and  of  inspecting  and  wrapping  merchandise.  In  the  early  days 
of  store-keeping  the  salesman  completed  each  transaction  with  each  of 
his  customers  by  accepting  the  money,  making  change,  wrapping,  and  de- 
livering the  parcel  to  the  customer. 

Twenty-five  or  more  years  ago  a  number  of  the  larger  stores  began 
to  relieve  salespeople  of  some  of  these  duties  by  installing  carrier 
devices  to  centralize  change  making  and  the  inspecting  and  wrapping 
of  goods.  Cashiers  were  put  in  charge  of  the  central  money-receiving 
and  change-making  station  and  inspectors  and  bundle  wrappers  were 
placed  at  the  central  wrapping  stations.  It  was  thought  that  this  divi- 
sion of  labor  would  result  in  greater  efficiency  in  all  departments  as  well 
as  greater  security  for  the  store  in  handling  its  cash  and  merchandise. 

More  recently  there  has  been  a  tendency  towards  decentralization, 
particularly  of  the  inspecting  and  wrapping  of  merchandise.  It  begins 
to  appear  that  the  centralization  of  these  functions  did  not  bring  in- 
creased efficiency  in  all  cases,  and  that  customers  seem  to  be  best 
pleased  when  the  operations  of  wrapping  are  performed  before  their 
eyes  by  the  salespeople.  The  clerk-wrap  plan,  as  it  is  called,  seems  to 
be  gaining  ground. 

But  whether  cash  and  credits  should  be  handled  from  central  sta- 
tions or  by  individual  salespeople  in  their  departments  is  a  matter  upon 
which  the  widest  difference  of  opinion  seems  to  prevail.  The  makers  of 
devices  to  be  used  both  for  centralized  and  decentralized  systems  claim 
advantages  and  arguments  over  each  other  that  are  hard  to  reconcile. 
Testimonials  of  the  satisfactory  service  of  the  one  as  against  the  other 
are  given  in  large  number  by  makers  of  the  devices  used  in  both  plans. 
An  analysis  of  some  of  the  arguments  which  are  advanced  on  both  sides 
follows : 

386 


APPENDIX  VI 


387 


Arguments  in  favor  of  a  de- 
centralized system  of  handling 
cash  by  means  of  cash  registers. 

1.  Takes      less      time     to     make 

change. 
No  waits  for  money  to  go 
to  cashiers.  No  delays 
such  as  due  to  stoppage 
of  tubes,  broken  cables,  de- 
lays of  cashiers,  etc. 

2.  Cost  less. 

Small   cost    of    up-keep.     No 
power   plant    required. 

3.  Saves    steps    for    salespeople. 

Easy  to  move  cash  registers 
to  convenient   locations. 


4.  Takes  up  little  room  and  adds 

to    attractiveness    of    store. 

5.  Insures     protection    of    store's 

cash. 
Claimed  that  carriers  do  not. 

6.  Salesperson    made    responsible. 

A  good  thing.  Salesman- 
ship improved.  Waits  for 
change  over  carrier  sys- 
tems are  embarrassing. 
Customers  are  better 
pleased  when  salesperson 
gives  entire  service  re- 
quired. Disputes  can  be 
settled  on  the  spot.  All 
parties  to  the  transaction 
close  at  hand. 


Arguments  in  favor  of  a  cen- 
tralized system  for  handling  cash 
by  means  of  pneumatic  tubes  or 
other   forms   of  carriers. 

1.  Takes      less      time     to      make 

change. 
No  waits  because  of  sales- 
people waiting  their  turns 
at  cash  registers.  Change 
made  by  expert  cashiers 
while  salespeople  wrap 
parcels. 

2.  Cost  less. 

Small  operating  expense. 

3.  Saves     steps     for     salespeople. 

Easy  to  provide  convenient 
tube  or  cable  stations. 
For  the  price  of  a  multiple 
drawer  cash  register,  three 
or  four  tube  stations  can 
be  installed. 

4.  Takes  up  less  room  than  cash 

registers    in    sales    depart- 
ments. 

5.  Insures    protection    of    store's 

cash. 
Claimed    that    cash    registers 
do  not. 

6.  Responsibility     removed     from 

salesperson. 
A  good  thing.  Salesman- 
ship improved.  Sales- 
people do  not  have  to 
think  about  cash.  Can 
give  whole  time  to  selling 
more  goods. 


388 


.ECONOMICS  OF  RETAILING 


7.  Miscellaneous. 

Easy  to  audit  from  printed 
record.  No  expenses  for 
cashiers.  Receipt  plan  re- 
duces salesperson's  tempta- 
tion to  dishonesty.  Not 
necessary  to  make  out 
sales  slips  in  some  depart- 
ments, when  cash  register 
receipts  are  given  out. 
Salespeople    like    registers. 


7.  Miscellaneous. 

Constant  control  over,  and 
easy  access  to,  cash  when 
centralized.  Expenses  for 
cashiers  distributed  among 
salespeople  when  cash  reg- 
isters are  used.  Sales- 
people cannot  detect  coun- 
terfeits. Cashiers  can. 
Salespeople  like  carrier 
and  tube  systems. 


APPENDIX  VII 

JUDICIAL  AND  OTHER  ACTION  AFFECTING 
PRICE-MAINTENANCE 

Instances  of  state  courts  holding  for  price-maintenance: 
Ice  Co.  V.  Parker,  21  How.  Pr.   (N.  Y.)  302   (1861). 
Clark  V.  Frank,  17  Mo.  App.  602  (1885). 
Walsh  V.  Dwight,  58  N.  Y.  Supp.  91  (1899). 
Garst  V.  Harris,  177  Mass.  72  (1900). 

Commonwealth  v.  Grinstead,  63  S.  W.  Rep.    (Ky.)   427   (1901). 
Park  &  Sons  Co.  v.  Nat.  Wholesale  Druggists'  Assn.,  175  N.  Y. 
1    (1903). 

Recent  state  court  decisions  favoring  the  price-maintenace  policy: 
Grogan  v.  Chaffee,  156  Cal.  611  (1909). 

Ghirardelli  v.  Hunsicker,  128   Pac.  Rep.    (Cal.)    1041    (1912). 
Fisher   Flouring  Mill   Co.   v.   Swanson,   137   Pac.   Rep.    (Wash.) 
144    (1913). 

Instances  of  Federal  courts  sustaining  price-maintenance: 
Dr.  Miles   Medical   Company  v.   Goldsmith,  133   Fed.  794. 
Dr.  Miles   Medical  Company  v.   Piatt,  142  Fed.   606. 
Hartman  v.  John  D.  Park  &  Sons  Co.,  145  Fed.  358. 
Wells  &  Richardson  v.  Abraham,  146  Fed.   190. 

In  the  case  of  Fisher  Flouring  Mills  Co.  v.  C.  A.  Swanson,  Supreme 
Court  of  Washington,  decision  rendered  December  13,  1913,  the  Court 
closed  its  argument  with  the  following  statement: 

"  Finally,  it  seems  to  us  an  economic  fallacy  to  assume  that  the 
competition,  which  in  the  absence  of  monopoly,  benefits  the  public, 
is  competition  between  rival  dealers.  The  true  competition  is  be- 
tween rival  articles,  a  competition  in  excellence,  which  can  never  be 
maintained  if,  through  the  perfidy  of  the  retailer  who  cuts  prices  for 
his  own  ulterior  purposes,  the  manufacturer  is  forced  to  compete  in 
prices  with  goods  of  his  own  production,  while  the  retailer  recoups 
his  losses  on  the  cut  price  by  the  sale  of  other  articles,  at,  or  above, 
their  reasonable  price.  It  is  a  fallacy  to  assume  that  the  price  cutter 
pockets  the  loss.    The  public  makes   it  up  on  other  purchases.    The 

389 


390 


ECONOMICS  OF  RETAILING 


manufacturer  alone  is  injured,  except  as  the  public  is  also  injured 
through  the  manufacturer's  inability,  in  the  face  of  cut  prices,  to 
maintain  the  excellence  of  his  product.  Fixing  the  price  on  all  brands 
of  high  grade  flour  is  a  very  different  thing  from  fixing  the  price  on  one 
brand  of  high  grade  flour.  The  one  means  the  destruction  of  all  compe- 
tition and  of  all  incentive  to  increased  excellence.  The  other  means 
heightened  competition  and  intensified  incentive  to  increased  excel- 
lence. It  would  not  do  to  say  that  the  manufacturer  has  no  interests 
to  protect  by  contact  in  the  goods  after  he  has  sold  them.  They 
are  personally  identified  and  morally  guaranteed  by  his  mark  and 
advertisement." 

The  state  of  New  Jersey  enacted  a  law  in  the  spring  of  1913, 
legalizing  price-maintenance.  Since  this  is  the  first  enactment  of  this 
kind  in  this  country,  the  statute  is  quoted  in  full: 

An  Act  to  Prevent  Unfair  Competition,  and  Unfair  Trade 
Practices 

"  Be  it  enacted  by  the  Senate  and  General  Assembly  of  the  State 
of  New  Jersey.  It  shall  be  unlawful  for  any  merchant,  firm,  or 
corporation,  for  the  purpose  of  attracting  trade  for  other  goods,  to 
appropriate  for  his  or  their  own  ends  a  name,  brand,  trade-mark, 
reputation  or  good  will  of  any  maker  in  whose  product  said  merchant, 
firm  or  corporation  deals,  or  to  discriminate  against  the  same,  by 
depreciating  the  value  of  such  products  in  the  public  mind,  or  by 
misrepresentation  as  to  value  or  quality  or  by  price  inducement  or 
by  unfair  discrimination  between  buyers,  or  in  any  other  manner 
whatsoever,  except  in  cases  where  said  goods  do  not  carry  any 
notice  prohibiting  such  practice,  and  excepting  in  case  of  a  receiver's 
sale,  or  a  sale  by  a  concern  going  out  of  business. 

"Any  person,  firm,  or  corporation  violating  this  act  shall  be  liable 
at  the  suit  of  the  maker  of  such  branded  or  trade-marked  goods, 
or  any  other  injured  person,  to  an  injunction  against  such  practices, 
and  shall  be  liable  in  such  suit  for  all  damages  directly  or  in- 
directly caused  to  the  maker  by  such  practices,  which  said  damages 
may  be  increased  threefold,  in  the  discretion  of  the   Court. 

"This  act  shall  take  effect  immediately"  (April  1,  1913). 

In  the  latter  part  of  the  90's,  an  attempt  was  made  to  read  the 
right  to  maintain  resale  prices  into  the  Copyright  and  Patent  Acts, 
but  in  recent  decisions  of  five  judges  against  four,  the  Supreme  Court 
has  decided  that  the  patent  and  copyright  acts  do  not  give  this  right 
to  the  holders  of  patents  or  copyrights.  In  deciding  thus  the  court 
has  probably  acted  in  a  thoroughly  logical  manner.  Certainly  Con- 
gress did  not  have  price-maintenance  in  mind  when  these  acts  were 


APPENDIX  VII  391 

passed.  Price-standardization  was  then  an  undreamed  of  need  of 
business.  Thus  the  decisions  have  little  or  no  significance,  so  far  as 
the  question  of  the  right  or  wrong  of  price-maintenance  is  con- 
cerned.    They   have   merely   settled   technical   legal   points. 

A  decision  of  a  Federal  court  in  1896,  known  as  the  "  Button 
Fastner  Case"  (Heaton  Peninsular  Button  Fastner  Co.  v.  Eureka 
Specialty  Co.,  77  Fed.  228)  gave  to  manufacturers  who  desired 
to  employ  the  price-maintenance  policy  the  belief  that  price-main- 
tenance could  be  applied  by  law  under  the  Patent  Act.  In  this  case 
a  manufacturer  and  patentee  of  a  machine  used  in  fastening  shoe 
buttons  by  means  of  metallic  staples,  sold  the  machine  to  shoe  dealers 
all  over  the  country  with  the  limitation  that  no  other  staples  than 
those  made  and  sold  by  this  company  should  be  used  in  the  machine. 
The  staples  were  not  patented  and  could  easily  be  made.  A  rival 
concern  began  putting  out  a  supply,  and  the  button  fastener  company 
sought  to  restrain  this  concern  as  infringers  of  its  patent  right,  the 
"sole  right  to  make,  use,  and  sell"  their  patented  product.  The 
Federal  court  held  that  the  "  sole  right  to  use  "  gave  the  patentee  the 
privilege  of  selling  that  right  with  restrictions  as  to  what  could  be 
used  with  the  patented  machine  and  granted  an  injunction  against 
the  rival  staple  manufacturer. 

It  was  thought  by  those  who  wished  to  market  their  goods  under 
maintained  price  rules  that,  under  this  decision  if  an  article  were 
patented,  its  resale  price  could  be  fixed  by  the  patentee.  In  accordance 
with  this  view  manufacturers  of  patented  specialties  began  soon  after  to 
stamp  their  goods  with  notices  to  the  effect  that  retail  prices  named  by 
the  producer  must  be  charged.  The  opponents  of  price-maintenance, 
some  department  stores,  the  so-called  cut-rate  stores,  and  the  mail  order 
houses,  were  loath  to  follow  the  instructions  in  these  resale  notices,  and 
trouble  resulted.  In  1903  the  first  price-maintenance  case  under  the 
Patent  Act  was  tried,  and  was  decided  in  favor  of  price-maintenance. 
This  case  was  the  Victor  Talking  Machine  Company  v.  Fair  Depart- 
ment Store  of  Chicago  (123  Fed.  424).  More  than  a  score  of  similar 
cases  came  up  in  the  next  six  or  seven  years  in  Federal  and  State 
courts,  most  all  of  which  were  decided  in  a  similar  manner,  that  is, 
in  favor  of  price-maintenance. 

The  Copyright  Act  was  worded  in  a  manner  much  the  same  as  the 
Patent  Act  and  it  was  therefore  supposed  that  it  also  gave  the 
right  to  restrict  the  resale  prices  as  well  as  the  Patent  Act.  Under 
this  supposition,  the  American  Publishers'  Association,  including 
75  per  cent  of  the  book  publishers  of  the  country,  was  organized 
to  prevent  price-cutting  in  the  selling  of  books.  The  first  cases 
were  brought  both  by  and  against  the  R.  H.  Macy  Department  Store, 
of  New  York  City. 


392  ECONOMICS  OF  RETAILING 

Two  suits,  begun  by  Bobbs-Merrill  and  Scribners  (Bobbs-Merrill 
Co.  V.  Strauss,  210  U.  S.  339),  against  this  store  were  pushed  to  the 
Supreme  Court  of  the  United  States,  and  there  it  was  decided  in  1908 
that  the  Copyright  Act  did  not  give  to  the  publisher  the  right  to 
fix  the  resale  price  by  notice  printed  on  the  back  covers  of  the 
books. 

Another  case  followed  in  the  U.  S.  Supreme  Court  in  1911,  the 
Dr.  Miles  Medical  Co.  v.  J.  D.  Park  &  Sons  Co.  (220  U.  S.  373). 
The  Miles  medicines  were  sold  to  dealers  with  price-maintenance 
restrictions.  J.  D.  Park  &  Sons  Co.,  wholesale  druggists,  obtained  sup- 
plies of  the  Miles  medicines  and  sold  them  to  retailers,  who  in  turn 
sold  them  at  cut  prices  to  the  public,  just  as  cut  price  druggists  are 
now  doing,  and  for  exactly  the  same  reasons,  merely  to  attract  trade 
and  to  sell  other  goods  upon  which  large  profits  could  be  obtained. 
The  Supreme  Court  held  that  price-maintenance  in  this  case,  and  as 
eflfected  by  the  Dr.  Miles  Medical  Company  constituted  unreason- 
able restraint  of  trade  under  the  Sherman  Anti-Trust  Act. 

On  March  11,  1912,  the  United  States  Supreme  Court  decided  a 
case  known  as  Henry  v.  A.  B.  Dick  &  Co.  (224  U.  S.  1)  which  had 
an  indirect  bearing  on  the  price-maintenance  question.  The  court 
upheld  the  A.  B.  Dick  Company  in  its  restrictions  on  the  use  of  the 
mimeograph,  with  the  stencil  paper,  ink,  and  other  supplies  made  only 
by  Dick  &  Co.,  as  a  patent  right.  It  was  believed  by  many  that  this 
decision  indicated  that  there  would  no  longer  be  any  question  that 
under  the  patent  law,  the  owner  of  a  patent  would  have  the  power 
of  fixing  resale  prices,  and  manufacturers  who  were  not  producing 
patented  articles  but  who  wished  to  maintain  prices  began  to  look 
around  for  something  to  patent  in  connection  with  their  product 
that  would  bring  them  under  the  protection  of  the  Patent  Act.  One 
of  these  was  the  Kellogg  Toasted  Corn  Flake  Company,  which 
patented  its  package  or  container  and  is  seeking  to  maintain  the  prices 
of  its  corn  flakes  under  the  patent  law. 

But  hope  for  price-maintenance,  based  on  the  Dick  decision,  was 
soon  destroyed.  At  the  time  the  Dick  decision  was  rendered,  there 
were  only  eight  judges  on  the  bench  and  one  of  these  did  not  take 
part  in  the  case.  Of  the  seven  judges  who  listened  to  the  case,  four, 
a  majority,  concurred  in  the  opinion  of  the  court,  while  three  dis- 
sented. 

In  the  next  case  to  come  before  the  court,  affecting  price-main- 
tenance under  the  patent  law,  known  as  "  The  Sanatogen  Case,"  Bauer 
Chemical  Co.  v.  O'Donnell  (229  U.  S.  1,  May  26,  1913),  the  full  court 
of  nine  judges  took  part.  The  three  judges  who  dissented  in  the  Dick 
case  were  joined  by  the  two  who  had  not  taken  part  in  that  case,  thus 


APPENDIX  VII  393 

making  a  majority  of  five  against  price-maintenance.  Several  cases  have 
since  been  tried  but  the  court  in  each  case  has  held  to  the  views  ex- 
pressed in  the  Sanatogen  case. 

The  European  courts  seem  to  sustain  and  enforce  price-main- 
tenance contracts  uniformly. 

Denmark  has  a  statute  specifically  permitting  price-maintenance. 
This  act,  passed  in  June,  1912,  reads  as  follows: 

"  It  is  also  forbidden  to  sell,  or  offer  for  sale,  goods  in  original 
wrappers  from  producers  or  jobbers,  upon  which  their  fixed  prices 
for  the  retail  trade  have  been  indicated,  at  a  lower  price,  unless  the 
sale  is  of  the  kind  mentioned  in  section  6  (namely,  sales  of  damaged 
goods,  sales  growing  out  of  going  out  of  business,  removal,  etc.) 
or  unless  the  permission  of  the  producer  or  jobber  or  other  sanction 
equal  thereto  has  been  granted.  Violations  may,  according  to  cir- 
cumstances, be  punished  by  fine  of  not  more  than  2,000  kroner. 

"Where  violations  of  this  law  have  taken  place,  and  any  indi- 
vidual, person,  or  business  has  suffered  thereby,  the  courts  are, 
while  prosecuting  the  case  originating  in  the  violations,  warranted 
in  awarding  an  indemnity  of  not  more  than  1,000  kroner  to  the 
person  or  business  injured,  without  regard  to  the  fact  that  proof 
as  to  the  extent  of  the  damage  .cannot  be  produced."     (Sec.  15.) 

Price-maintenance  contracts  were  enforced  under  the  decisions 
of  English  courts  in  the  following  cases: 

Elliman  Sons  &  Co.  v.  Carrington  &  Sons,  2  Ch.  Div.  275  (1901). 
National    Phonograph    Co.   v.    Edison-Bell    Co.,   1    Ch.    Div.    335 

(1908). 
Dunlop  Pneumatic  Tyre  Co.,  Ltd.,  v.  Selfridge  &  Co.,  Ltd.,  29 

T.  L.  R.  270   (1913). 
Ford  Motor  Co.  v.  Armstrong,  decided  in  1914,  not  yet  reported. 
Dunlop  Pneumatic  Tyre  Co.,  Ltd.,  v.  New  Garage  Co.,  decided 

July  1,  1914,  not  yet  reported. 

German   courts   have  likewise   favored  price-maintenance. 

Jandorf   v.    Incorporated    Assn.    of    Manufacturers    of    Branded 
Articles;  Berlin  Geschaftsnummer,  73,0,  179.05,  48  VI,  489.06. 

Efforts  are  being"  made  at  the  present  writing,  May,  1915,  to  %tt 
national  legislation  permitting  price-maintenance.  The  Stevens  Bill, 
H.  R.  13,305,  introduced  in  Congress  February  12,  1914,  provides 
that  contracts  for  the  sale  of  trade-marked  or  branded  merchandise  for 
the  purpose  of  prescribing  uniform  resale  prices  shall  be  legal  under 
certain  conditions  and  restrictions;    Another  bill,  known  as  the  Metz 


394  ECONOMICS  OF  RETAILING 

Bill,  embodying  similar  features  but  with  fewer  restrictions  was 
introduced  at  about  the  same  time. 

The  American  Fair  Trade  League,  an  organization  of  manu- 
facturers, wholesalers,  retailers,  and  consumers,  with  headquarters 
in  New  York  City,  was  formed  in  1913  and  has  since  actively  worked 
for  the  passage  of  the  Stevens  Bill.  This  organization  has  had  the 
active  support  of  such  people  as  Louis  D.  Brandeis;  Mrs.  Christine 
Frederick,  Consulting  Editor  of  Ladies'  Home  Journal;  Mrs.  Julian 
Heath,  President  of  the  National  Housewives'  League;  Alfred  D. 
Woodruff,  Food  Supply  Expert  of  the  New  York  Association  for 
Improving  the  Conditions  of  the  Poor;  Dr.  Lee  Galloway,  New  York 
University;  Dr.  Thomas  Conway,  Jr.,  University  of  Pennsylvania; 
as  well  as  a  large  number  of  prominent  men  engaged  in  various 
lines  of  business. 

The  Chamber  of  Commerce  of  the  United  States  of  America, 
at  its  annual  meeting  in  1914,  provided  for  the  organization  of  a 
special  committee  on  the  maintenance  of  resale  prices  to  study  and 
analyze  the  questions  involved. 

This  committee,  as  originally  appointed,  was  composed  of  Professor 
Paul  T.  Cherington,  Harvard  University,  Chairman;  Geo.  M.  Courts, 
Galveston,  Texas,  President  of  United  Typothetae  and  Franklin  Clubs 
of  America;  Henry  B.  Joy,  of  Packard  Motor  Car  Company,  De- 
troit, Mich.;  F.  W.  Whitcher,  of  Frank  W.  Whitcher  Co.,  14  Albany 
St.,  Boston,  Mass.;  Professor  Paul  H.  Nystrom,  University  of  Min- 
nesota; Charles  A.  Stix,  of  Stix,  Baer  &  Fuller  Dry  Goods  Co., 
St.  Louis,  Mo.;  Edward  S.  Rogers,  Attorney,  Chicago,  111.;  Frank 
H.  Armstrong,  of  Reid  Murdock  &  Co.,  Chicago,  111.;  James  F. 
Finneran,  of  National  Association  of  Retail  Druggists,  Boston,  Mass. 
Later  the  name  of  F.  H.  Rike,  President  of  the  Rike-Kumler  Co., 
Dayton,  Ohio,  was  added. 

This  committee  held  a  meeting  at  Washington,  February  2  and  3, 
1915,  at  which  a  preliminary  report  was  made.  Upon  instructions 
from  the  Chamber,  the  committee  continued  its  work,  and  prepared 
to  present  its  first  complete  report  in  December,  1915. 


INDEX 


Accounting,  retail,  70-78  (See  also 

"  Cost  Accounting  ") 
Advertising,  165,  166 
bargain,  201-204 
by    department    stores,    202-204, 

212 
by  large  retail  stores,  270 
by  mail  order  houses,  241,  242, 

249,  251,  252 
public  regulation  of,  360 
truthful,  360 
Age  and  demand,  42,  43 
American    Economic    Association, 
studies  of  retail  distribution 
by,  66-68 
American  Fair  Trade  League,  393, 

394 
American    Federation    of    Labor, 

110 
Annuities  for  salesmen,  103 
Architecture,  store,  155,  156 
Aristotle,  on  retailing,  16 
Atlanta,    revenue    from    business 

taxes  in,  347 
Augusta,    revenue    from    business 
taxes  in,  347 


Bacon,  Sir  Francis,  18 
Bagmen,  29 

Balconies,  in  retail  stores,  159 
Banking    departments    in    depart- 
ment stores,  199 


Banks,  credit  information  function 
of,  31,  32 

Bargain  advertising,  201-204 

Bargain  basements,  156 

Bargain  sales,  201-204 

Basements  in  retail  stores,  156 

Beloit,  Wis.,  changes  in  retail  firms 
in,  312,  313 

Birmingham,   revenue   from  busi- 
ness taxes  in,  347 

Bobbs-Merrill  Co.  v.  Strauss,  392 

Bonuses, 
in  chain  stores,  231,  232 
for  salesmen,  102,  103,  104,  105 

Boston,  retail  trade  in,  65,  66,  323, 
380 

Boys,  salaries  of,  100 

Brad  street  Company,  31 
classification  of  business  failures 

by,  313,  314 
failure  estimates  of,  303 
lists  of  dealers  of,  66 

Budgets,  workingmen's  family,  50- 
52,  373-376 

Building  rent,  119,  120  (See  also 
"  Rent ") 
increase  in,  129 

Buildings  for  retail  stores,  155,  156 

Burroughs  Adding  Machine  Com- 
pany, 71,  76,  77 

Business     failures     (See     "Fail- 
ures ") 

Business  literature,  18-22 

Business  lots,  value  of,  by  depth, 
168-170 

Business  taxes,  337-356 


395 


396 


INDEX 


Business  taxes  —  continued 
arguments  against,  349,  350 
arguments  for,  350-352 
court  decisions  on,  354 
in  Canada,  345 
in  France,  343-345 
in  Germany,  344,  345,  352 
in  United  States, 
Federal,  345,  346 
state  and  city,  346,  347 
methods  of  assessing,  342,  343 
object  of,  339-341 
on  department  stores,  344,  345, 

352,  354 
scope  of,  341,  342 
shifting   and  incidence  of,   347, 
348 
Button  Fastner  case,  391 
Buyers  for  mail  order  houses,  246- 

248 
Buying  at  inside  prices,  277-299 
Buying  expenses,  73 


Canada,  business  taxes  in,  345 
Canned  foods,  55,  56 
Capital, 

activity  of,  181,   182    (See  also 
"Turnovers") 

source  of,  309-311 
Cash  discount,  34,  280-282 
Cash,  methods  of  handling,  386- 

388 
Cash  registers,  arguments  for,  387, 

388 
Catalogs  of  mail  order  houses,  242 
Central  stores,  140 
Chain  stores,  216-234 

advantages  of,  224-226 

bonuses  in,  231,  232 

consolidation  of,  233 
'  c6nsumers'  co-operative,  222,  223 

disadvantages  of,  226,  227 


Chain  stores  —  continued 
in  Europe,  218 
in  the  United  States,  216-218 
jobbers',  220,  221 
manufacturers',  221,  222 
organization  of,  227-232 
prospects  for,  233 
retailers',  219,  220 
salaries  in,  231 
tendency  toward,  361,  362 
Chamber  of  Commerce  of  United 
States,  committee  on  main- 
tenance of  resale  prices,  394 
Chapmen,  29  ^ 

Charleston,  revenue  from  business     I 

taxes  in,  347 
Chicago,  as  a  wholesale  center,  34 
Children  as  consumers,  42,  43 
Cicero,  on  merchants,  16 
Cigars,  annual  consumption  of,  146 
Cities,   business   taxation  in,   346, 

347 
City  markets,  145,  146 
Clinton,    Wis.,    changes    in    retail 

firms  in,  313 
Clothiers,  number  of,  319,  320 
Clothing,  demand  for,  57 
Commercial  travelers, 
early  American,  31,  33 
early  English,  29 
relation  of,  to  volume  of  manu- 
factures and  imports,   327- 
329 
Commission   basis    for   wages    of 

salesmen,  101,  102 
Community  habits  and  demand,  46 
Competition, 
cut-throat,  177,  179 
effect  of  business  tax  on,  352 
eflfect  of  cost  keeping  on,  177 
influence  of,  in  fixing  prices,  176, 

177,  189 
price-maintenance  and,  266,  274, 
275 


INDEX 


397 


Competition  —  continued 
remedy  for,  364-366 
tendencies  of,  67 
waste  due  to,  363 
Concessions  to  buyers,  278,  279 
Consumer-demand,    53    (See    also 
"  Demand  ") 
influence    of,    in    fixing    prices, 
174-176 
Consumers,  41-61 
co-operative  chains,  222,  223 
number  of  retail  stores  and,  334, 
335 
Consumers'  League,  111 
Consumption, 

estimates  of,  50,  51 
factors  influencing,  85,  86 
Co-operative  stores,  222,  223 
Copyright  Act,   price-maintenance 

under,  390-392 
Corner  locations,  value  of,  150,  151 
Cost  accounting,  retail,  70-78 
application  of,  in  fixing  prices, 

187,  188 
effect  of,  on  competition,  177 
Costs, 
analysis  of,  187 
influence  of,  in  fixing  prices,  172- 

174 
of  department  stores,  211-213 
of  distribution,  370 

increase  in,  332,  333,  336 
of  mail  order  business,  251,  252 
of  production,  decrease  in,  332, 

333 
publicity  concerning,  194 
rules  for  figuring,  385 
Court  decisions, 
on  price-maintenance,  255,   260, 

389-393 
on    taxation    of     retail    stores, 
354 
Credit    business    of    mail    order 
houses,  245,  246 


Credit  relations  between  wholesal- 
ers and  retailers,  36,  37 
Credits,  methods  of  handling,  386 
Credit  system  in  wholesaling  and 

retailing,  67,  68 
Custom, 

and  demand,  45,  46 

influence  of,  in  fixing  prices,  178, 
179 
Cut  prices,  190,  191,  269,  270,  296 

friction  due  to,  363 

in  chain  stores,  224 

price-maintenance  and,  257-260 

psychological  significance  of,  272 
Cut-throat  competition, 

elimination  of,  177 

opposition  to,  179 


Dealers  (See  "Retailers") 

Defoe,  Daniel,  19,  29,  30 

Delivery  expenses,  74 

Demand, 

factors  influencing,  42-60 
influence    of,    in    fixing    prices, 
174-176,  180,  181 

Denmark,     price-maintenance     in, 
393 

Dentist,  store,  94 

Department  stores,  195-215 
advantages  of,  208-211 
advertising  by,  200-204 
banking  departments  in,  199 
chain  of,  in  Germany,  218 
comparison   of   departments   in, 
with  retail  stores  in  Boston, 
380 
costs  of,  211-213 
development  of,  195-199 
disadvantages  of,  211-214 
location  of  departments  in,  161 
mail  order  business  in,  237 
organization  of,  204-208 


398 


INDEX 


Department  stores  —  continued 
percentage  of  expense  for  sell- 
ing in,  98,  99 
salaries  in,  208,  209,  213 
salesmanship  in,  214 
"service"  of,  199,  200,  212 
statistics  of,  197,  198 
taxation  of,  344,  345,  352,  354 
Discount, 
cash,  34,  280,  281,  282 
on  merchandise   to   salespeople, 

105 
quantity,  271,  272,  279,  283,  284 
arguments  against,  289-294 
arguments  for,  285-289 
effect  of,  on   consumer,  295- 
297 
Dishonesty  in  selling,  90 
Display, 
of  goods,  162,  163 
window,  166,  167 
Distribution  of  goods,  13-23   (See 
also  "Retailing") 
channels  of,  37-40 
costs  of,  332,  333,  336,  370 
education  in,  316 
effect  of  factory  production  on, 

330,  331 
literature  on,  18-22 
non-competitive,  364-366 
popular  attitude  toward,  15-18 
problem  of,  22,  23 
system  of,  24-37 
Dr.   Miles   Medical   Co.   v.   J.   D. 

Park  and  Sons  Co.,  392 
Druggists, 
charges  of,  to  the  poor,  179 
number  of,  319 
price  schedules  for,  178 
Drug  store  chains,  217 

in  Europe,  218 
Drummer,  33,  34 

Dry-goods  merchants,  number  of, 
319 


Dry-goods  stores, 

as     forerunner    of    department 
stores,  196 

costs  of  retailing  in,  78,  79 
Dun,  R.  G.,  and  Company,  31 

failure  estimates  of,  303 

reference  books  of,  66 


Economic  conditions,  effect  of,  on 

demand,  58,  59 
Economics,  literature  on,  19,  20 
Economy  basements,  in  department 

stores,  156 
Edgerton,  Wis.,  changes  in  retail 

firms  in,  313 
Education, 
effect  of,  on  demand,  58 
for  retail  selling,  115,  116,  370, 

371 
for  salesmanship,  93-95 
in  distribution  of  goods,  316 
Efficiency  in  relation   to   location. 

and  rents,  123-125,  127,  128 
Elevators,  157 
Emigration,  effect  of,  on  demand, 

57 
Employees'  mutual  benefit  associa- 
tions, 106-108 
Engel's  family  expenditure  tables, 

373 
Engel's  laws,  373-376 
England, 
court  decisions  on  price-mainte- 
nance in,  393 
department  stores  in,  198 
development  of  distributive  sys- 
tem of,  24-30 
ground  rent  in,  119,  120 
minimum  wage  law  of,  112 
Proprietary  Articles  Trade  As- 
sociation, 368 
Engrosser,  16 


INDEX 


399 


Escalators,  157 

Ethical    considerations    in    fixing 

prices,  179,  180 
Europe, 
chain-store  systems  in,  218 
court  decisions  on  price-mainte- 
nance in,  393 
Evansville,  Wis.,  changes  in  retail 

firms  in,  312,  313 
Expenditure  of  workingmen's  fam- 
ily, 50-52,  373-37S 
Expenses  of  retailing,  69-82 
classification  of,  73-76 
for  wages,  97-100 
Exportation  of  goods,  early,  27 


Factory  system,  effect  of,  oh  dis- 
tribution, 28,   330,   331 
Fairs,  English,  28 
Failures,  300-316,  335 

causes  of,  313,  314 

due  to  location,  119 

due  to  wrong  estimates  of  costs, 
173 

estimates  of,  301 

nature  of,  315 

rate  of,  300-^16 

studies  of,  301-313 

types  of,  300,  301 
Family    expenditures,    distribution 

of,  50-52,  373-376 
Federal  business  taxes,  345,  346 
Fernley,  Thomas  A.,  71,  72,  77 
Fines  in  retail  stores,  108 
Fisher  Flouring  Mills  Co.  v.  C.  A. 

Swanson,  389,  390 
Five  and  ten  cent  stores,  217 

turnovers  in,  223 
Fixed  charges,  75 
Fixtures,  store,  164 
Floor  space  in  retail  stores,  addi- 
tional, 156-159 


Food  stores, 

chains  of,  in  Europe,  218 

in  Massachusetts,  379 
Foodstuffs,  demand  for,  53-56 
Forestaller,  16,  17 
Forward  dating,  282 
France, 

business  tax  in,  343-345 

failure  rate  in,  303 
Free  deal,  280,  285-287 


General  store,  35,  195,  196 
Geographical     variations     in     de- 
mand, 46,  47 
Germany, 
business  tax  in,  344,  345,  352 
court  decisions  in  favor  of  price- 
maintenance  in,  393 
department  stores  in,  198 
Goodwin,  Frank  E.,  71,  76 
Grange  movement,  235 
Grocers, 
number  of,  319 

ratio  of,  to  population,  320,  321 
Grocery  chains,  216,  217 
Ground  rent,   119,   120,   129    (See 

also  "Rent") 
Guarantees  of  mail  order  houses, 
248,  249 


Habit  of  crowds  and  store  loca- 
tion, 149,  150 
Habits  and  demand,  45,  46 
Hart,  Schaffner  and  Marx,  72 
"  Harvard  System  of  Accounts  for 

Shoe  Retailers,"  70 
Hat  store  chains,  217 
Health  and  salesmanship,  93,  94 
Henry  v.  A.  B.  Dick  &  Co.,  392 
Hoodoo  locations,  149 


400 


INDEX 


Ideal  retailing  system,  357-371 
Immigration,  effect  of,  on  demand, 

57 
Importation  of  goods,  early,  2G,  27 
Imports   and   manufactures,   ratio 

of  retailers  to,  325-330 
Income, 

demand  and,  47-53 

of    families    in    United    States, 
1910,  49 
Ingersoll,  William  H.,  72 
Inside  prices,  271,  272,  277-299 

arguments  against,  289-294 

arguments  for,  284-289  .   . 

forms  of,  278-282 

friction  due  to,  363 

prevention  of,  367 

public  policy  and,  294-297 

results  of,  297 
Investigations  of   family  budgets, 
373-376 


Jacksonville,  revenue  from  busi- 
ness taxes  in,  347 

Janesville,  Wis.,  study  of  retail 
failures  in,  311,  312 

Jewelers,  number  of,  319 

Jobbers'  chains,  220,  221 

Jordan  Marsh  Company's  store, 
197 


Kansas  City,  revenue  from  busi- 
ness taxes  in,  347 

Knights  of  Labor,  110 

Knoxville,  revenue  from  business 
taxes  in,  347 


Labor  conditions,  effect  of,  on  de- 
mand, 58 
La   Crosse,   Wis.,  study  of   retail 

failures  in,  311,  312 
Licenses,  337-339  (See  also  "  Busi- 
ness Taxes  ") 
liquor,  348,  351 
peddlers',  340,  341 
Life  insurance  for  employees,  103 
Liquor  license,  348,  351 
Literature, 
business,  18-22 

popular  effect  of,  on  mail  order 
business,  240 
Living     wage     (See     "Minimum 

Wage  ") 
Location  of  retail  stores, 

factors  of  desirability  in,  138-153 
failures  due  to,  119 
importance  of,  118,  119 
intensive  use  of,  154-171 
principles  of  rent  applicable  to, 
118-137 
Long-term  lease,  influence  of,  on 

rents,  136,  137 
Lots,  business,  valuation  of,  168- 

170 
Lumber  dealers,  number  of,  319 
Luxuries,  consumption  of,  146 


Macon,    revenue    from    business 
taxes  in,  347 

Magazines,    influence    of,    on    de- 
mand, 59 

Mail  order  business  in  department 
stores,  237 

Mail  order  catalog,  242 

Mail  order  houses,  235-254 
advantages  of,  252,  253 
advertising  by,  241,  242,  249,  251, 
252 


INDEX 


401 


Mail  order  houses  —  continued 
buyers  for,  246-248 
conditions  favoring,  239-241 
correspondence  departments  of, 

249,  250 
costs  of,  251,  252 
credit  business  of,  245,  246 
disadvantages  of,  253,  234 
guarantee  of,  248,  249 
routine  in,  250,  251 
statistics  of,  237,  238 
system  employed  by,  243-245 
Management  expenses,  74 
Manufacture,   decreased   costs   of, 

332,  333 
Manufactures, 
effect  of,  on  distribution,  28,  330, 

331 
imports  and ;   ratio  of  retailers 
to,  325-330 
Manufacturers'     chain-store     sys- 
tems, 221,  222 
Marginal  utility,  87 
Market,  public,  145,  146 
Marshall  Field's,  108 
Massachusetts, 
investigation  of  retail  trade  in, 

65,  66 
retail  statistics  in,  323 
trade  census  of,  64,  65,  377-381 
Mercantile  agencies,  31,  32 
Mercantile    reference    book,    first, 

31 
Merchant  adventurers'  companies, 

26,  27 
Merchant,  definition  of,  27 
Merchants'    stock    companies,    26, 

27 
Metz   Bill    for   price-maintenance, 

393 
Mezzanine  floors,  159 
Middleman,  elimination  of,  37 
Minimum  wage,  109-116 
laws,  112 


Minimum  wage  —  continued 
laws,  arguments  for,  112-114 
arguments  against,  114,  115 
scales,  stores  adopting,  109 
Minnesota,  University  of,  account- 
ing system  of,  72 
Misrepresentation  of  goods,  90 
Missouri,  taxation  of  department 

stores  in,  354 
Mobile,     revenue     from    business 

taxes  in,  347 
Monopoly, 
due  to  business  taxes,  340 
price-maintenance  and,  264,  266 
remedies  for,  366,  367 
retail,  297 
Montgomery,  revenue  from  busi- 
ness taxes  in,  347 
Montgomery  Ward  and  Company, 

235,  236,  238 
Mutual   benefit    associations,    em- 
ployees', 106-108 


National  Association  of  Credit 
Men,  retail  accounting  rules 
of,  71,  76 

National  Implement  and  Vehicle 
Association,  71,  76 

Neighborhood  stores,  139,  140 

New  Jersey,  price-maintenance 
law  in,  390 

New  Zealand,  minimum  wage  law 
of,  112 

Newspaper  advertising  by  depart- 
ment stores,  200,  201 

Newspapers,  influence  of,  on  de- 
mand, 59 

Norfolk,  revenue  from  business 
taxes  in,  347 

Novels,  influence  of,  on  demand, 
59 

Nurse,  store,  94 


402 


INDEX 


Occupation  taxes   (See  "Business 

Taxes") 
Office  expenses,  74,  75 
Offices,  store,  location  of,  161 
Old  age  pensions,  in  retail  stores, 

103 
One-line  stores,  35,  36 
One-price  policy,  191,  192 
arguments  for,  289-294 
in  selling  to  dealers,  283 
Ontario,  business  taxes  in,  345 
Opportunity  cost,  175 
Organizations  in  retail  stores,  204- 

214 
Oshkosh,  Wis.,  study  of   failures 

in,  303-311 


Package  foods,  55,  56 

Paris,  department  stores  in,  198 

Passers-by, 

buying-habits  of,  146,  147 

number  of,  138-140 

object  of,  141-143 

purchasing  power  of,  141 
Patent  Act,  price-maintenance  un- 
der, 390-392 
Peddlers,  license  tax  on,  340,  341 
Personality  and  selling,  91,  92 
Physician,  store,  94 
"PM,"  103,  105 

Pneumatic     tubes     for     handling 
cash,  arguments  for,  387,  388 
Population, 

average,    to    retail    and    other 
stores,  380,  381 

influence  of,  on  rents,  130,  133, 
134 

ratio  of  retailers  to,  320-324,  327 
Premiums, 

for  salesmen,  103,  104,  105 

in  chain  stores,  231,  232 


Price-cutting,    190,    191,    269,    270, 
296 
friction  due  to,  363 
in  chain  stores,  224 
price-maintenance  and,  257-260 
psychological  significance  of,  272 
Price-discrimination,       271,       272, 
277-299 
arguments  against,  289-294 
arguments    for,   284-289 
forms  of,  278-282 
friction  due  to,  363 
prevention  of,  367 
public  policy  and,  294-297 
results  of,  297 
Price-maintenance,   255-276,   367 
advantages  of,  273-275 
arguments  against,  263-267 
arguments  for,  262,  263 
attitude    of    manufacturers    to, 

261 
attitude  of  retailers,  262 
attitude  of  wholesalers,  262 
court  decisions  on,  255,  260,  389- 

393 
definition  of,  255 
development  of,  255-260 
fixing  of  prices  for,  267,  268 
in  Denmark,  393 
judicial  and  other  action  affect- 
ing, 389-394 
legislation    for,    proposed,    393, 

394 
methods  of,  260,  261 
price-cutting  and,  257-260 
Price  schedules,  178 
Price  standardization  (See  "  Price- 
maintenance  ") 
Prices, 
inside,  271,  272,  277-299 
retail,  fixing  of,  172-194 
factors  in,  172-189 
methods  of,  189,  195 
policies  of,  191-194 


INDEX 


403 


Privilege    taxes    (See    "Business 

Taxes") 
Prize  systems  in  chain  stores,  232 
Producers,    friction    between    re- 
tailers and, 
causes  of,  363 
remedies  for,  363-366 
Production, 
analysis  of,  125-127 
decreased  costs  of,  332,  333 
factors  of,  69 

factory,    effect   of,    on   distribu- 
tion, 330,  331 
Professional  taxes,  341 
Profit-sharing,  103,   104,   105 
Profits, 
location  determined  by,  138 
on  price-maintained  goods,  266 
percentage  of,  figured  on  selling 

price,  77,  78 
rules  for  figuring,  385 
Property    rights,    effect   of   price- 
maintenance  on,  263,   264 
Proprietary  Articles  Trade  Asso- 
ciation of  England,  368 
Proprietary  drugs,  increase  in,  57 
Prussia,  business  tax  in,  344,  345 
Public  markets,  145,  146 
Public  regulation, 
of  advertising,  360 
of  retail  business,  337-356,  360, 
361,  368,  369 
advantages  of,  353 
by   business    taxes,    339    (See 

also  "  Business  Taxes  ") 
difficulty  of,  353-355 
Public  schools,  business  education 

in,  116,  371 
Publicity,  165,  166 


Quantity  discounts, 
arguments  against,  289-294 


Quantity  discounts  —  continued 
arguments   for,  285-289 
effect  of,  on  consumer,  295-297 

Quota  for  chain  stores,  230,  231 


Race  characteristics  and  demand, 

45,  46 
Ready-to-wear  stores,  costs  of  re- 
tailing in,  78,  79 
Reduction  sales,  190,  191  (See  also 

"  Price-cutting") 
Regrator,  16,  17 
Regulation,   public    (See    "Public 

Regulation  ") 
Rents, 

apportionment   of, 
to  various  departments,  168 
to  various  floors,  158 
average,  132,  133 
building,  119,  120,  129 
checks  on,  134 
definition  of,  119 
increase  in,  128-132 
percentage  of,  to  sales,  increase 

in,  128,  130,  131 
principles  of,  applicable  to  retail 
stores,  118-137 
Reporting  system  of  chain  stores, 

229,  230 
Retail  accounting,  70-78 
Retail   Clerks'   International   Pro- 
tective Association,  110,  111 
Retail  district,  143 
Retail  failures,  300-316,  335    (See 
also  "Failures") 
causes   of,   313,  314 
nature  of,  315 
Retail  market,  opening  of,  to  all 

producers,   364-366 
Retail  monopolies,  297 
Retail  prices,  fixing  of,  17^194 


404 


INDEX 


Retail   salesmen, 
education  of,  93-95 
requirements  for,  90-93 
work  of,  82-96 
Retail  stores, 
average  population  to,  380,  381 
buildings  for,  155,  156 
chains  of,  219,  220,  361,  362 
failure  rate  of,  300-316 
function  of,  41 
grouping  of,  143-146 
location  of, 

factors  of  desirability  in,  138- 

153 
intensive  use  of,  154-171 
principles    of    rent    applicable 
to,  118-137 
number  of, 

compared    with    goods    to   be 
handled,  324-332 
:v    compared      with      population, 
320-324 
from    consumer's    standpoint, 

334,  335 
from  retailer's  standpoint,  333, 
334 
public    regulation    of,    337-356, 

360,  361,  368,  369 
ratio   of,   to   manufactures   and 

imports,  325-330 
statistics    of,   in   Massachusetts, 

379 
taxation  of,  337-356 
Retail     trade     associations,     367, 

368 
Retail  trade  papers,  95 
Retailers, 
^      criticism  of,  15-18 

friction  between  producers  and, 
causes  of,  363 
remedies  for,  363-366 
functions  of,  36,  37 
in   United   States   in   1913,   382- 
384 


Retailers  —  continued 
ratio  of, 
to  population,  320-324,  327,  333 
to    working    population,    321, 
322,  327 
U.  S.  Census  statistics,  318-323 
Retailing, 
development  of, 

from  1850  to  1910,  319-323 
in  America,  34-36 
in  England,  24-28 
education  for,  370,  371 
effect  of  factory  production  on, 

330,  331 
effect  of  standards  of  living  on, 

331 
expenses  of,  69-81 
classification  of,  73-76 
for  wages,  97-100 
ideal  system  of,  357-371 
literature  on,  18-22 
modern  tendencies  in,  67,  68 
persons  engaged  in,  14,  62-66 
popular  ignorance  of,  194 
present  status  of,  62-68 
public    regulation    of,    337-356, 
360,  361,  368,  369 
advantages  of,  353 
difficulty  of,  353-355 
reforms  in,  363-366 
relation  of  consumer  to,  41,  42 
studies  of,  369,  370 
Revenue,   business  tax  as   source 
of,  355 


Salaries, 

in  chain  store  systems,  231 

in  department  stores,  208,  209, 
213 

in  Massachusetts  trading  con- 
cerns, 379 

in  retail  stores,  97-117  (See  also 
"  Wages  ") 


INDEX 


405 


Salesmanship,  82-96,  170,  171 
demand  created  by,  175,  176 
department  store,  214 
education  for,  93-95,  115,  116 
evils  of,  89,  90 
factors  in,  90-95 
social  importance  of,  88,  89 
Salesmen,  retail, 
annuities  for,  103 
education  of,  93-95 
in  ideal  retailing  system,  359 
influence  of,  in  fixing  prices,  189, 

190 
organization  of,  110-112 
requirements  for,  90-93 
wages  of,  97-117 
work  of,  82-96 
Salesmen,  traveling  (See  "  Travel- 
ing Salesmen") 
Saleswomen, 
age  of,  108,  109 
number  of,  83,  84 
salaries  of,  100,  101,  109 
Sanatogen    case,   392 
Savannah,  revenue  from  business 

taxes  in,  347 
Savings     and     loan     associations, 

106 
Seager,     Professor,    on    business 

taxes,  351,  352 
Sears,  Roebuck  and  Company,  236, 

237,  238 
Selling  expenses,  74,  97-100 
influence    of,    in    fixing    prices, 
174,  187,  188 
Selling  price,  as  a  basis  for  com- 
puting   expense    and   profit 
percentages,  76-78 
Service     factors     in     department 

stores,  199,  200,  212 
Sex  and  demand,  43-45 
Shady  side  of  the  street,  advantages 

of,  147,  148 
Shelving  in  stores,   164 


Shoe  retailers. 
Harvard  system  of  accounts  for, 

70 
number  of,  319,  320 
Shoe  stores, 
chains  of,  217 

in  Europe,  218 
cost  of  retailing  in,  79,  80 
Shops    (See   also   "Stores") 

development  of,  24-27 
Short  credits,  34 
Show  windows,  166,  167 
Sick    and    death    benefit    associa- 
tions, 106 
Smith,  Adam,  on  traders,  17 
Special  discounts  (See  "  Price-dis- 
crimination ") 
Specialty  stores,  35,  36 

vs.  department  stores,  204-214 
Spencer,  Herbert,  on  trading,  17 
Spending  power  and  demand,  47- 

52 
"SpiflF,"  103,  105 
Standardized  goods, 
advantages  of,  268,  269 
price-cutting  and,  255-260 
Standards  of  living,  effect  of,  on 

retailing,  331,  335 
State  business  taxes,  346,  347 
Stevens     Bill     for     price-mainte- 
nance, 393 
Stock  keeping  to  economize  space, 

165 
Storage  of  surplus  stock,  161,  162 
Store  architecture,  155,  156 
Store  arrangement,  160-162 
Store  display,  162,  163 
Store  equipment,  163-165 

in  ideal  retailing  system,  359 
Store  offices,  location  of,  161 
Stores, 
average  rent  of,  132,  133 
central,  140 
chain,  216-234 


4o6 


INDEX 


Stores  —  continued 
department,    195-215    (See   also 

"Department  Stores") 
dry-goods,  78,  79,  196 
five  and  ten  cent,  217,  223 
general,  35,   195,  196 
grouping  of,  143-146 
having     minimum-wage     scale, 

109 
mail  order,  235-254 
neighborhood,  139,  140 
retail   (See  "Retail  Stores") 
specialty  or  one-line,  35,  36,  210- 

214 
Subway  store,  156 


Taxes, 
business,     337-356      (See     also 

"  Business  Taxes  ") 
license,  337-341 
professional,  341 
Temperature,  influence  of,  on  lo- 
cation of  stores,  147 
Time  basis  for  wages,  101 
Tobacco  and   cigar   store   chains, 
217 
in  Europe,  218 
Trade  and  transportation,  persons 
engaged    in,    321-323,     328, 
329 
Trade  relations  committees,  368 
Trade  statistics  for  Massachusetts, 

377-381 
Trading  posts,  35 
Transportation, 

in  eighteenth  century,  27 
trade,  and  persons  engaged  in, 
321-323,   328,   329 
Traveling     salesmen      (See     also 
"  Commercial    Travelers  ") 
development  of,  33,  34 
relation  of,  to  volume  of  manu- 


factures  and   imports,   327- 

329 
Trusts  (See  "Monopoly") 
Turnovers, 
computation  of,  182 
in  chain-store  systems,  223 
in  five  and  ten  cent  stores,  223 
influence    of,    in    fixing    prices, 

182-186 
statistics  of,  185,  186 


Unions  among  salespeople,  110-112 
United     Cigar     Stores     Company, 
217 
subsidiary  corporations  of,  228 
United   States, 
business  taxes  in. 
Federal,  345,  346 
state  and  city,  346,  347 
dealers  in,  in  1913,  382-384 
development  of  distributive  sys- 
tem in,   30-36 
U.  S.  Bureau  of  Labor,  investiga- 
tion of   family  budgets  by, 
374,  375 
U.  S.  Census  figures, 

for  manufactures,  325-329 
for  retail  dealers,  318-323 
O.  S.  Chamber  of  Commerce,  com- 
mittee   on    maintenance    of 
resale  prices,  394 
U.  S.  Supreme  Court,  decisions  on 

price-cutting,  255,  260 
Up-keep     and     depreciation     ex- 
penses, 75 


Variable  price  policy,  192,  193 
Victor     Talking     Machine     Com- 
pany   V.    Fair    Department 
Store  of  Chicago,  391 


INDEX 


407 


Victoria,  minimum  wage  law  of, 

112 
Vocational  training  for  salesmen, 

94,  95,  116 

W 

Wage,  minimum  (See  "Minimum 

Wage") 
Wages, 

of   Massachusetts    trading   con- 
cerns, 378,  379 

of  salespeople,  97-117 

of  saleswomen,  100,  109 
Wanamaker  stores,  108 
Warehouses,   early   English,   27 
Welfare  work,  106 
Wholesalers, 

functions  of,  36 

number  of,  319 

retail  failures  and,  316 
Wholesaling,   development  of,  28, 
29.  30-34 


Wm.  Filene's  Son's  Company,  108 
Wilson,  Woodrow,  on  unfair  com- 
petition, 272 
Window  display,  166,  167 
Wisconsin,  costs   of   retailing  in, 

80 
Won?.en, 
as  consumers,  43-45 
in  retail  stores,  83,  84 
age  of,  108,  109 
salaries  of,  100,  101,  109 
Women's    Trade    Union    League, 

111 
Worcester,  Mass.,  failure  rate  in, 

302 
Workingmen's  family  budgets,  50- 
52 
investigations  of,  373-376 
Working  population,  ratio  of  re- 
tailers  to,   321,   322,   327 
Working  Women's  Protective  Un- 
ion, 110 
Wrapping  of  merchandise,  386 


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